International R&D Spillovers

Abstract

A model is presented based on recent theories of economic growth that treat commercially oriented innovation efforts as a major engine of technological progress. We study the extent to which a country`s total factor productivity depends on domestic and foreign R&D capital stocks, both proxied by cumulative R&D expenditures. We estimate our equations on a pooled data set of 22 countries during 1970-90 and interpret our results as pooled cointegrating equations. While the beneficial effects on TFP from domestic R&D is well established, we find that foreign R&D is also important. Our estimates suggest that foreign R&D has a stronger effect on domestic productivity the more open an economy is to foreign trade, and that the rate of return on R&D capital stocks is very high, both in terms of domestic output and in terms of international spillovers.

JEL Classification: O31, O40