Factor Intensities, Rates of Return, and International R&D Spillovers: The Case of Canadian and U.S. Industries

This paper estimates the effects of both intranational and international spillovers on production cost, and factor intensities (including R&D intensity) for eleven manufacturing industries in the U.S., and Canada. In addition, social rates of return to R&D capital are calculated, and decomposed into private rates of return, and the extra-returns due to intranational and international spillovers. International spillovers are usually cost reducing, and increase R&D and physical capital intensities. International spilovers are generally labor and intermediate input intensity reducing. In Canada, international spillover effects are more elastic than domestic spillover elasticities. In the U.S. the same relationship exists, but is not as pronounced. Social rates of return to R&D capital are substantially above the private rates in both Canada and U.S. In Canada, international spillovers generally account for a greater percentage of the social returns relative to the domestic spillovers. In the U.S. the converse occurs. Canadian social rates are from two and a half to twelve times greater than private returns, while U.S. social returns are from three and a half to ten times greater than the private rates.