International R&D spillovers in Central and Eastern Europe. The role of capital imports and local conditions

In this paper, we analyze both theoretically and empirically the role of foreign technology (embodied in capital and intermediate goods imports from more advanced countries) as the main driver of technology diffusion and productivity growth in the Central and Eastern European (CEE) member countries, taking into consideration the ability of these economies to adopt new technologies domestically. Productivity spillovers may vary depending on the absorptive capacities, thus conferring some scope for policy makers in their attempt to maximize the potential benefits from foreign transactions. Based on industrial-level data, we use different panel data methodologies to estimate the links between labor productivity, imports of capital goods, and local conditions in the CEE member states for the period 1995-2009. To detect potential different patterns of technology absorption at different stages of development, we split the sample into two different country groups: more and less advanced countries. Our results suggest that capital imports are productivity enhancing in the Central and Eastern European economies, with a greater effect on less advanced countries. Our estimates also confirm the relevance of other local conditions, such as domestic capital, skill endowments, and the technology gap, in productivity gains.