(partly) _non excludable_ – restricting access to information is difficult. As a result, technology can be imitated. This is a major obstacle to its production by the market. Indeed, the development of an invention usually requires a (potentially large) upfront investment, which an inventor may be reluctant to incur if others, in particular competitors, appropriate a part of the value of the innovation.

Diffusion is a crucial, but tricky stage in the innovative process: It is when the technology is used, and thus when it yields benefits in the field. But it is also when others can imitate the technology, hindering inventors from exploiting their technology so as to benefit from market exclusivity. Any public policy should thus find ways to boost diffusion while preserving incentives to innovate. We consider in detail in Section 3 the potential of different policy instruments such as R&D subsidies, or patent law.

# **Learning-by-searching versus learning-by-doing**

Technologies are obviously created within specialized R&D departments or organizations (learningby-searching), but also through learning-by-doing which refers to the capability of workers to improve their productivity by regularly repeating the same type of action. The increased productivity is achieved through practice, self-perfection and minor innovations. Learning-by-doing potentially yields very large efficiency gains. The learning rate is for instance about 20 percent for photovoltaic energy technologies in the studies surveyed by De La Tour et al. (2013), meaning that (unit) costs fall by 20 percent for each doubling of cumulative production. The existence of learning-by-doing has crucial policy implications as it means that public policies should not only target R&D activities, but also downstream activities of the innovation process (experimentation, technology deployment, and commercialization). It is a form of knowledge creation which seems easier to reach for certain developing countries, which have less advanced technology capabilities.

# **The channels of technology transfer**

The notion of “technology transfer” can be confusing, for these transfers may concern either intangible knowledge as such, or the physical support in which this knowledge is embedded. The economic literature<sup>5</sup> argues that technology and the related knowledge may be transferred through voluntary transactions aiming at commercializing and/or exploiting technological products in the recipient country. Three market channels are usually distinguished (see Table 1 and Popp, 2009).

**International trade in intermediate goods** . The import of capital goods, such as machines and equipment, entails technology transfer for such goods embody technologies which can then bring productivity benefits in the recipient countries. International trade induces however little cross-border transfer of knowledge as such, simply because this knowledge remains in the originating country and is directly exploited there. Yet even in this case, there may be knowledge spillovers in the recipient country (Rivera-Batiz and Romer, 1991). Local firms can indeed reverse-engineer imported products, or acquire knowledge through business relationships (e.g., as customer or distributor) with the source company. As an illustration, China has acquired production technologies to develop a highly performing solar photovoltaic industry by purchasing turnkey production lines from German, US and Japanese suppliers (de la Tour et al., 2011). They are now able to produce production equipment on their own.

> 5 Keller (2004) is a comprehensive survey of the economic literature on technology diffusion.

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