How does technology transfer affect backward linkages? A motivating example theoretical analysis

- Multinational increases the level of backward linkages.
- Multinational firms have incentive to transfer technology to local suppliers.
- Backward linkages increase when multinational firms transfer technology.

This paper develops a model in which the presence of a multinational leads to a technology transfer to its local suppliers and also modifies the degree of backward linkages in the local economy. First, we identify the domestic market characteristics under which the multinationals increase the level of backward linkages when they enter these markets. Moreover, we investigate the conditions under which the multinational could even benefit itself from transferring technology to its local suppliers. Finally, when the multinational transfers technology, we show when the level of backward linkages in the local economy increases.