International R&D Spillovers

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 not only on domestic R & D capital but also on foreign R & D capital. Our estimates indicate that foreign R & D has beneficial effects on domestic productivity, and that these are stronger the more open an economy is to foreign trade. Moreover, the estimated rates of return on R & D are very high, both in terms of domestic output and international spillovers.