R&D Spillovers in Agriculture: Results from a Trade Model

The objective of this study is to analyze technical change and the role of research and development (R&D) spillovers in this process for the U.S. agricultural sector. This study is composed of both a theoretical and an empirical analysis. In the theoretical analysis, a quality innovation model is used in which the R&D sector is the source of technological progress and is composed of a public and a private sector. The public R&D sector can serve either as a substitute to the private R&D sector or as a complement to it. Free trade is included in the next step of the analysis as a mechanism through which R&D spillovers are realized, along with increased market size for domestic R&D firms and increased competition from foreign R&D firms. Two different trade scenarios are utilized: a North-North and a North-South, as the United States has trade relations with both developed and developing countries. In the empirical analysis, the propositions of the model are tested for U.S. agricultural sector data. I find that R&D spillovers have a significant and positive effect on technical change as well as private R&D spending. The results indicate that the public R&D sector's complementary role outweighs its substitutability to the private R&D sector, as it is found to have a significantly positive effect on private R&D spending.