The technology balance of payments and international competitiveness: a panel data analysis of southern European countries, 2000-2017.

• Author: Barros, Diana

1. Introduction

   The international transfer of technology, which often operates through foreign direct investment (Bodman and Le, 2013; Osano and Koine, 2016), international trade (Spulber, 2008), and technical licensing agreements (Tanaka et al., 2007) is critical for countries' economic growth development.

   At the level of international trade, the emphasis has been placed mainly on tangible trade flows (Lusch and Vargo, 2014; Ariu, 2015). The international flow of intangible goods has been less explored (Freund and Weinhold, 2002; Corrado et al., 2013), despite the growing importance of the so-called knowledge-based economies (Francois and Hoekman, 2010, Paz-Marin et al., 2015). International trade flows of intangibles are recorded in the Technology Balance of Payments (TBP), and its balance reflects the ability of a country to sell/ acquire technologies from abroad (OECD, 2009).

   There are very few cross-country studies on the TBP. Those that exist (e.g., Horn, 1982; Sirilli, 1991; Sanchez and Vicens, 1991; Saiz, 2005; Coelho et al., 2011; Avallone and Chedor, 2012) focus on the deficit values of TBP registered in a certain country, and do not relate the balance of the TBP to that country's international competitiveness. It is also not clear whether the balance of the TBP determines the international competitiveness of a country (e.g., Horn, 1982; Godin, 2005; Coelho et al., 2011; Avallone and Chedor, 2012). In fact, a surplus balance may correspond to a high degree of technological autonomy, a low level of technology imports, or an inability to assimilate foreign technologies (OECD, 2009). Moreover, the deficit values recorded in the TBP of a given economy can be interpreted differently (Biedma, 2003; Godin, 2004). They may stem from a country's effort to increase its competitiveness (Coelho et al., 2011), from an effort on the part of the companies aimed at increasing competitiveness in their area of performance (Biedma, 2003), or from an increase in foreign technology imports or a decrease in revenues (OECD, 2009).

   Thus, the present paper seeks to contribute empirically to the limited literature on the TBP, by assessing the extent to which TBP matters for countries international competitiveness in its diverse dimensions, price competitiveness, labor productivity, and total factor productivity (TFP) growth. Specifically, it aims at answering the following research question: Does a surplus in TBP increases countries' international competitiveness?

   We answer this question by focusing on a specific set of countries, the four countries from the Southern Europe. This set constitutes a relevant case study for several reasons. First, these countries are characterized by an industrial structure that is relatively dependent on the so-called traditional sectors where, at a first glance, the possession and trade of intangible assets are not so critical for international competitiveness (Molero, 1995; Teixeira et al., 2014). Second, in the European context, the most recent (2017) Innovation Union Scoreboard places the Southern European countries together with a set of other Western (Malta) and Eastern (Czech Republic, Estonia, Cyprus, Lithuania, Hungary, Slovakia, Latvia, Poland, Croatia) European member states in the Moderate Innovators category, that is, relatively laggard in what innovation performance is concerned. The Moderate Innovators countries usually perform bellow the EU average on all innovation indicators, particularly for intangible related assets such as public-private co-publications, and EPO patent applications, although they outperform the EU average for non-R&D innovation expenditures, and trademark applications (EU, 2017). Thus, given this blurred picture, the relevance of intangible assets for moderate innovators' international competitiveness deserves further analysis. Third, contrary to their moderate innovators counterparts, Southern Europe is an geographical area with specific and common features, paths of development characterized by a distinct variety of capitalist organization, often described as Mediterranean VoC (Hay and Wincott, 2012), maintaining certain characteristics in the organization of economic, social and political institutions that provide them a 'hugely different socio-political etiquette' (Ferrera, 1996) that differ from their more developed Western neighbours such as Germany, the Netherlands, Austria and Finland, and which makes them worthy of analysis and justify an individualized study as a group (Ferrera, 2005; Baumeister and Sala, 2015; Regan, 2017).

   To test for the existence of an eventual relationship between TBP and international competitiveness, this study performs a causality analysis resorting to fixedand random-effects and system-GMM panel estimation methods involving the four Southern European countries (Greece, Italy, Portugal and Spain) over a relatively long time period, 2000-2017.

   Estimations based on static and dynamic panel data evidence that the TBP balance does matter for Southern Europe countries' international competitiveness, regardless how this latter is proxied (price-competitiveness, labor productivity or TFP growth). Such finding is relevant for economies with similar characteristics to Southern Europe, i.e., countries characterized by a level of intermediate technological development. For such countries, the need for increasing innovative performance, most notably based on intangible related assets, is fundamental to enhance their international competitiveness. Thus, policies should be formulated and implemented to promote increased efforts regarding the development of assets such as patents, licenses, trademarks, and services with technical content.

   The remaining sections are structured as follows. Section 2 provides an overview of the state-of-the-art in the literature on TBP and international competitiveness. Section 3 describes the methodology used. Section 4 presents the empirical results. Finally, the last section presents the conclusions, main contributions, policy implications, and limitations and paths for future research.

2. Literature review: TBP and competitiveness

   2.1. Technology Balance of Payments (TBP)

   The TBP, devised in accordance with OECD guidelines, provides information on the international circulation of technology (Madeuf, 1983; Cokgungor, 2015), and is an important tool for the understanding of trade relations among countries (Negri et al., 2011). Thus, as an indicator of output, the TBP "reflects the capacity of a country to sell intangible technology abroad and the extent to which it makes use of foreign technologies" (Denis et al., 2006, p. 51), by recording money flows paid or received for the use of patents, licenses, knowledge, brands, models, designs, industrial research and development (R&D), and technical services, including technical assistance (Madeuf, 1983; Sirilli, 1991; Saiz, 2005; OECD, 2009; Coelho et al., 2010; Heitor and Bravo, 2010; Bento and Fontes, 2016).

   The TBP Manual covers the different flows that give rise to a recorded entry in the TBP (OECD, 1990). However, there are three conditions that must be fulfilled in order for an operation to be registered in the TBP. First, the transaction must be international, i.e., involve partners from different countries; second, the transaction must be commercial, involving a flow of revenue/expenditure between the parties involved; and third, the transaction should only correspond to payments related to trade in intangible assets and/or the provision of technological services (OECD, 1990; Sirilli, 1991; Coelho et al., 2010).

   The data on the TBP have to primarily provide an accurate measurement of intangible technology trade (Mendi, 2007) and a partial indication of Science & Technology output (Matos and Coelho, 2010). By analyzing the technological profile of the OECD and European countries, Avallone and Chedor (2012) found that countries with a high Gross Domestic Expenditure on Research and Development (GERD) as a percentage of GDP are the countries that export more technology.

   However, given the variety of ways in which technology can circulate internationally, the TBP might not represent, according to some authors (e.g., Madeuf, 1983; Godin, 2005), a completely reliable indicator of technology diffusion. Specifically, TBP does not record all international transactions involving intangible assets (Horn, 1983; Madeuf, 1983; Godin, 2005; Matos and Coelho, 2010), namely transactions involving transfers associated with subsidiaries of multinational corporations (Madeuf, 1983). The transfer of technology from multinational companies to their subsidiaries does not explicitly involve licensing agreements or the transfer of know-how and acquisitions, as well as their payments, insofar as they may correspond to the transfer of technology necessary for their operation (OECD, 2005). Other types of technology transfer that are not recorded on the TBP include cross-licensing agreements on the basis of reciprocity (Horn, 1983; Madeuf, 1983). (1)

   The TBP may also have other limitations (Patel and Pavitt, 1995; Godin, 2005). In addition to not measuring intangible technology that is transferred internationally based on the imitation of innovations (R&D products, regardless of reverse engineering), the underlying data collection may be imprecise due to the lack of harmonization between countries.

   The limitations associated with the balances of the TBP have been referenced (e.g., Horn, 1983; Madeuf, 1983; Godin, 2005; Matos and Coelho, 2010). Nonetheless, TBP can still be used as an (albeit partial) indicator of international technology transfer, as the balance provides information about: the level of independence in terms of intangible technology; the origin of the technology used in the production system or exports; the relationship between a country's R&D effort and its technology revenues; the ability of a country to develop or cooperate with other countries in...