How Important Is Trade and Foreign Ownership in Closing the Technology Gap? Evidence from Estonia and Slovenia

This paper focuses on the impact that the different methods of privatization implemented in Estonia and Slovenia might have had on the pattern of technology transfer to domestic firms through either FDI or international trade. We develop an empirical model that looks at three aspects of the problem: the importance of direct and indirect effects of FDI; the role of local absorptive capacity; and the role of trade in technology transfer. The study finds that the method of privatization does influence the way a firm obtains technology from abroad: Estonia, which attracted a considerable amount of FDI through its privatization programme, used this channel to gain direct access to global markets for technology, while Slovenia discouraged sales of state enterprises to multinational firms and inclined domestic firms to use trade flows to gain access to these markets.