The effect of strategic technology adoptions by local firms on technology spillover

•Constructs a theoretical model to examine the influence on technology spillover•If technology gap is large, local firm may not adopt it•Analyze the effect of LCR on technology transfer•LCR may fail to enhance technology spillover

This paper examines the influence on technology spillover of the strategic decisions by local firms to adopt the advanced technology of multinationals, which has in fact been ignored in previous studies. To do so, we construct a theoretical model by combining technology adoption and technology spillover models through backward linkage. If the technological gap is large between the multinational and local firm, it may be reasoned that the local firm is making the strategic decision not to adopt the advanced technology in order to avoid direct competition with the multinational firm. In this case, even though the transferred technology is diffused and the local firm has the capacity to absorb it, the technology spillover may not occur. Additionally, we apply the model to analyze the effect of local content requirements (LCR) on technology transfer and technology spillover. The analysis shows that LCR may fail to enhance technology spillover because these do not encourage the adoption of the technology.