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The purpose of this research is to analyze the dynamics of innovation and technological diffusion from the channels of international linkage at the microeconomic level. We specify and want to learn about the effects of sectoral innovation and technology transfer with international linkages: Imported technology, Information and Communication Technology, Foreign direct investment and its spillovers and trade. We apply a dynamic factor demand model to analyze the relationship between four channels of international technology transfer and diffusion, allowing for heterogeneous international linkages and their contribution to productive performance on Taiwan¡¦s manufacturing industries. We adopt the econometric method of the Generalized Method of Moment (GMM) to estimate the parameters of related equations. Throughout the empirical analysis, we hope to understand how degree of effects the four channels of technology transfer have on firm¡¦s productivity performance and the adjustment process of quasi-fixed input, capital, because of technology transfers. We found that:(1) It has the highest output level in Electrical and Electronic Manufacturing in Taiwan¡¦s manufacturing industry.(2) The exogenous technical change has a positive effect on output growth. As for the channels of international linkage, imported technology and R&D all have positive contribution to productivity. FDI has a negative impact on output growth except for Petroleum & Coal Products Manufacturing, but the effect of the FDI spillover has a positive contribution in the Taiwan¡¦s manufacturing industry.