Knowledge externalities and sectoral interdependences: Evidence from an open economy perspective

The paper studies how producers and users benefit from reciprocal innovative activities. Ideally, such gains translate in an increased innovative dynamics of knowledge receivers, who accrue pecuniary knowledge externalities and take advantage of these external effects in their own activity. In principle, nothing prevents that, in an increasingly integrated world, knowledge externalities would be generated both in purely domestic as well as cross-country knowledge-based transactions. Nevertheless, the evidence reported in the paper suggests that localized rather than international knowledge externalities are dominating. In the empirical analysis based on a panel of 23 2-digit manufacturing and service sectors in 15 EU countries (1995–2007), dynamic panel techniques permitting to account for the possible reverse causality in the underlying relations are implemented.