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The Two Faces of R&D and Human Capital: Evidence from Western European Regions

  • Johanna Vogel

This paper investigates two channels through which research and development (R&D) and human capital may affect regional total factor productivity growth in the manufacturing sector, using panel data on 159 EU-15 regions from 1992 to 2005. Based on the endogenous growth model of Griffith, Redding and Van Reenen (2003), we allow R&D and human capital to influence productivity growth both directly, reflecting own innovation, and indirectly, reflecting imitation of frontier technology. Further, the model allows for conditional convergence to a long-run level of TFP relative to the frontier.We also develop an extension that captures geographically localised technology spillovers.Our preferred system-GMM estimates provide evidence of a positive and significant direct effect of human capital, and a positive and significant indirect effect of R&D on productivity growth. This may be interpreted as lending support to the recent focus of EU regional policy on raising educational attainment and R&D expenditures, although their channels of influence appear to differ.Our results also suggest that TFP convergence has taken place over our sample period and that geographic distance to the technology frontier matters.

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Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number 599.

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Date of creation: 01 Apr 2012
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Handle: RePEc:oxf:wpaper:599
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