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Identifying Technology Spillovers and Product Market Rivalry

  • Nicholas Bloom
  • Mark Schankerman
  • John Van Reenen

Support for many R&D and technology policies relies on empirical evidence that R&D "spills over" between firms. But there are two countervailing R&D spillovers: positive effects from technology spillovers and negative effects from business stealing by product market rivals. We develop a general framework showing that technology and product market spillovers have testable implications for a range of performance indicators, and exploits these using distinct measures of a firm's position in technology space and product market space. We show using panel data on U.S. firms between 1981 and 2001 that both technology and product market spillovers operate, but that net social returns are several times larger than private returns. The spillover effects are also revealed when we analyze three hightech sectors in detail - pharmaceuticals, computer hardware andtelecommunication equipment. Using the model we evaluate three R&Dsubsidy policies and show that the typical focus of support for small and medium firms may be misplaced.

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Article provided by Econometric Society in its journal Econometrica.

Volume (Year): 81 (2013)
Issue (Month): 4 (07)
Pages: 1347-1393

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Handle: RePEc:ecm:emetrp:v:81:y:2013:i:4:p:1347-1393
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  1. Jaffe, A.B. & Trajtenberg, M., 1992. "Geographic Localization of Knowledge Spillovers as Evidenced by Patent Citations," Papers 14-92, Tel Aviv.
  2. Acemoglu, Daron & Aghion, Philippe & Zilibotti, Fabrizio, 2002. "Distance to Frontier, Selection, and Economic Growth," CEPR Discussion Papers 3467, C.E.P.R. Discussion Papers.
  3. Charles I. Jones & John C. Williams, . "Measuring the Social Return to R&D," Working Papers 97002, Stanford University, Department of Economics.
  4. Glenn C. Loury, 1976. "Market Structure and Innovation," Discussion Papers 256, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  5. Wolfgang Keller, 2001. "International Technology Diffusion," NBER Working Papers 8573, National Bureau of Economic Research, Inc.
  6. Lee, Tom & Wilde, Louis L, 1980. "Market Structure and Innovation: A Reformulation," The Quarterly Journal of Economics, MIT Press, vol. 94(2), pages 429-36, March.
  7. Jasjit Singh, 2005. "Collaborative Networks as Determinants of Knowledge Diffusion Patterns," Management Science, INFORMS, vol. 51(5), pages 756-770, May.
  8. Cockburn, Iain & Henderson, Rebecca, 1994. "Racing to Invest? The Dynamics of Competition in Ethical Drug Discovery," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 3(3), pages 481-519, Fall.
  9. Tor Jakob Klette & Zvi Griliches, 1994. "The Inconsistency of Common Scales Estimators when Output Prices are Unobserved and Endogenous," Discussion Papers 127, Statistics Norway, Research Department.
  10. Joris Pinkse & Margaret E. Slade & Craig Brett, 2002. "Spatial Price Competition: A Semiparametric Approach," Econometrica, Econometric Society, vol. 70(3), pages 1111-1153, May.
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