Knowledge caps in industrial development

The recognition of the link between the international division of labour and knowledge diffusion has been somehow disregarded by the economics of innovation and by development and internationalisation theories. Each of these perspectives has, in turn, addressed a specific aspect of the problem: namely, the nature of knowledge and the conditions under which technological change occurs; the importance of human capital formation and educational policies for promoting development; and the role of knowledge assets for the internationalisation of production either to exploit technological advantages abroad or to benefit from localised knowledge in host countries. In this article, these angles are three pieces of the same picture, which are combined together in order to provide a perspective on how the knowledge incorporated in production impacts on the accumulation of localised knowledge. The paper addresses some of the limitations and effects of transnational corporations as a means to facilitate learning and the diffusion of knowledge in developing countries. It then links the results of this analysis to the phenomenon of geographical polarisation of knowledge-creation activities. Our aim is to provide a framework for understanding the direction of industrial development in the light of the international division of labour operated by transnationals. In particular, we focus on those aspects of production that are related to knowledge, its nature and evolution over time. Our contribution emphasises how production decisions influence the evolution of knowledge assets within firms and territories, and determine (sometimes irreversibly) the evolutionary trajectory of localities. Given the cumulative nature of learning and the close links that relate actors’ opportunities with their past experiences, we argue that the technological direction defined by transnationals might not have much to offer to developing countries or, worse, might activate a vicious circle that would hamper the capability of developing countries to discover and develop innovations of their own