The main purpose of this paper is to present new evidence on the long run relationship between R&D efforts and productivity performance of UK manufacturing industries in the presence of inter-industry and international spillovers of technology. The main dataset used to perform this analysis is a panel of eight UK manufacturing industries over the period 1970 to 1997. The empirical results indicate that there is a positive and significant link between industry's R&D activities and productivity in the long run. In addition, robust evidence was found of positive and significant domestic R&D externalities. Conversely, the finding that international spillovers do not contribute to TFP suggests that R&D spillovers are primarily an intra-national phenomenon, which may serve as a warning against under-estimating the importance of domestic technological efforts and over-estimating the potential contribution of international spillovers.
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