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Do spillovers matter when estimating private returns to R&D?

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  • Eberhardt, Markus

    (St Catherine's College, Oxford, Department of Economics)

  • Helmers, Christian

    () (Wolfson College, Oxford)

  • Strauss, Hubert

    () (European Investment Bank, Economic and Financial Studies)

Abstract

A large body of literature on the estimation of private returns to R&D adopts the Griliches knowledge production framework, ignoring the impact omitted spillover effects may have on consistent estimation. A separate body of literature is primarily interested in the presence and magnitude of spillovers but imposes a rigid ad hoc structure on the channels these can take, e.g. within-industry, within-country or determined by industry input-output matrices. In this paper we adopt a common factor approach which accounts for R&D spillovers without imposing any arbitrary structure on their nature and channels. At the same time we can account for other unobserved common processes which may a ect countries or sectors di erentially, e.g. economic shocks or business cycles, as well as heterogeneous evolution of TFP over time. Panel data from 12 industrial sectors of 12 OECD and EU countries (1980-2005) is used to arrive at unbiased estimates of private returns to R&D. Our results indicate the presence of substantial cross-sectional dependence in the residuals of the Griliches knowledge production function, pointing to the presence of knowledge spillovers. Further, our estimations suggest that when ignoring the presence of spillovers, R&D produces positive returns. However, when cross-sectional dependence is accounted for, we do not nd any convincing evidence for positive private returns to R&D. These results suggest that spillovers may not be additively separable from own-R&D and need to be accounted for in the estimation even when the exclusive interest lies in obtaining estimates for private returns to R&D.

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Bibliographic Info

Paper provided by European Investment Bank, Economics Department in its series Economic and Financial Reports with number 2010/1.

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Length: 42 pages
Date of creation: 28 Feb 2010
Date of revision:
Handle: RePEc:ris:eibefr:2010_001

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Keywords: Productivity; R&D; Spillovers; Common Factor Model;

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Cited by:
  1. Bianco, Dominique & Niang, Abdou-Aziz, 2012. "On international spillovers," Economics Letters, Elsevier, vol. 117(1), pages 280-282.
  2. António Afonso & João Tovar Jalles, 2012. "The Fiscal-Growth Nexus," Working Papers 2012/01, Department of Economics at the School of Economics and Management (ISEG), Technical University of Lisbon..
  3. Markus Eberhardt & Christian Helmers, 2010. "Untested Assumptions and Data Slicing: A Critical Review of Firm-Level Production Function Estimators," Economics Series Working Papers 513, University of Oxford, Department of Economics.
  4. António Afonso & João Tovar Jalles, 2011. "Growth and Productivity: the role of Government Debt," Working Papers 2011/13, Department of Economics at the School of Economics and Management (ISEG), Technical University of Lisbon..
  5. Cern Ertur & Antonio Musolesi, 2012. "Spatial autoregressive spillovers vs unobserved common factors models. A panel data analysis of international technology diffusion," INRA UMR CESAER Working Papers 2012/9, INRA UMR CESAER, Centre d’Economie et Sociologie appliquées à l’Agriculture et aux Espaces Ruraux.
  6. Carolina Castagnetti & Eduardo Rossi & Lorenzo Trapani, 2012. "Inference on Factor Structures in Heterogeneous Panels," DEM Working Papers Series 002, University of Pavia, Department of Economics and Management.
  7. Simone Bertoli & Herbert Brücker & Jesus Fernández-Huertas Moraga, 2013. "The European Crisis and Migration to Germany: Expectations and the Diversion of Migration Flows," Working Papers 2013-03, FEDEA.
  8. Heike Belitz & Florian Mölders, 2013. "International Knowledge Spillovers through High-Tech Imports and R&D of Foreign-Owned Firms," Discussion Papers of DIW Berlin 1276, DIW Berlin, German Institute for Economic Research.
  9. António Afonso & João Tovar Jalles, 2011. "Linking Investment and Fiscal Policies," Working Papers 2011/16, Department of Economics at the School of Economics and Management (ISEG), Technical University of Lisbon..
  10. Anna Bottaso & Carolina Castagnetti & Maurizio Conti, 2011. "And Yet they Co-Move! Public Capital and Productivity in OECD: A Panel Cointegration Analysis with Cross-Section Dependence," Quaderni di Dipartimento 154, University of Pavia, Department of Economics and Quantitative Methods.

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