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International R&D Spillovers and Unobserved Common Shocks

  • Ruge-Leiva, Diego-Ivan

This paper investigates whether returns to domestic R&D and international R&D spillovers should be estimated without considering the heterogeneous impact of unobserved common shocks, as has been done by the literature in this area. Using a panel of 50 economies from 1970-2011, I find that when unobserved common shocks are disregarded, estimates of domestic R&D and foreign R&D weighted by bilateral imports might be biased and inconsistent. Once unobserved common factors are accounted for, by allowing for heterogeneous technology coefficients, significant estimates become more sizable, consistent and not seriously biased in most cases. However, these estimates might be capturing not only returns to domestic R&D and trade-related knowledge spillovers, but also unobserved common spillovers and other effects. This indicates that knowledge spillovers and effects of unknown form cannot be easily separated. Therefore, unobserved common shocks should not be ignored when estimating returns to domestic R&D and international R&D spillovers.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 56718.

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Date of creation: 16 Jun 2014
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Handle: RePEc:pra:mprapa:56718
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  1. M. Hashem Pesaran, 2004. "General Diagnostic Tests for Cross Section Dependence in Panels," CESifo Working Paper Series 1229, CESifo Group Munich.
  2. Nick Bloom, 2007. "Uncertainty and the dynamics of R&D," LSE Research Online Documents on Economics 19724, London School of Economics and Political Science, LSE Library.
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  4. Alexander Chudik & M. Hashem Pesaran & Elisa Tosetti, 2011. "Weak and strong cross‐section dependence and estimation of large panels," Econometrics Journal, Royal Economic Society, vol. 14(1), pages C45-C90, February.
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  6. John Van Reenen & Nick Bloom & Steve Bond, 2006. "Uncertainty and investment dynamics," LSE Research Online Documents on Economics 2645, London School of Economics and Political Science, LSE Library.
  7. Chudik, Alexander & Mohaddes, Kamiar & Pesaran, M. Hashem & Raissi, Mehdi, 2013. "Debt, inflation and growth robust estimation of long-run effects in dynamic panel data models," Globalization and Monetary Policy Institute Working Paper 162, Federal Reserve Bank of Dallas.
  8. Alexander Chudik & M. Hashem Pesaran, 2013. "Large panel data models with cross-sectional dependence: a survey," Globalization and Monetary Policy Institute Working Paper 153, Federal Reserve Bank of Dallas.
  9. Pesaran, M. Hashem & Smith, L. Vanessa & Yamagata, Takashi, 2007. "Panel Unit Root Tests in the Presence of a Multifactor Error Structure," IZA Discussion Papers 3254, Institute for the Study of Labor (IZA).
  10. Alexander Chudik & M. Hashem Pesaran, 2013. "Common Correlated Effects Estimation of Heterogeneous Dynamic Panel Data Models with Weakly Exogenous Regressors," CESifo Working Paper Series 4232, CESifo Group Munich.
  11. Peter Klenow & Andrés Rodríguez-Clare, 1997. "The Neoclassical Revival in Growth Economics: Has It Gone Too Far?," NBER Chapters, in: NBER Macroeconomics Annual 1997, Volume 12, pages 73-114 National Bureau of Economic Research, Inc.
  12. David T. Coe & Alexander W. Hoffmaister, 1999. "Are there International RandD Spillovers Among Randomly Matched Trade Partners? A Response to Keller," IMF Working Papers 99/18, International Monetary Fund.
  13. Guellec, Dominique & Pottelsberghe de la Potterie, Bruno van, 2003. "From R&D to Productivity Growth: Do The Institutional Setting and The Source of Funds of R&D Matter?," IIR Working Paper 03-26, Institute of Innovation Research, Hitotsubashi University.
  14. Donald W.K. Andrews, 2004. "Cross-section Regression with Common Shocks," Yale School of Management Working Papers ysm401, Yale School of Management.
  15. Pesaran, M. Hashem & Tosetti, Elisa, 2011. "Large panels with common factors and spatial correlation," Journal of Econometrics, Elsevier, vol. 161(2), pages 182-202, April.
  16. M. Hashem Pesaran, 2004. "Estimation and Inference in Large Heterogeneous Panels with a Multifactor Error Structure," CESifo Working Paper Series 1331, CESifo Group Munich.
  17. Markus Eberhardt & Christian Helmers & Hubert Strauss, 2013. "Do Spillovers Matter When Estimating Private Returns to R&D?," The Review of Economics and Statistics, MIT Press, vol. 95(2), pages 436-448, May.
  18. Markus Eberhardt, 2012. "Estimating panel time-series models with heterogeneous slopes," Stata Journal, StataCorp LP, vol. 12(1), pages 61-71, March.
  19. Georges Bresson & Badi H. Baltagi & Alain Pirotte, 2007. "Panel unit root tests and spatial dependence," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 22(2), pages 339-360.
  20. Zvi Griliches, 1998. "Issues in Assessing the Contribution of Research and Development to Productivity Growth," NBER Chapters, in: R&D and Productivity: The Econometric Evidence, pages 17-45 National Bureau of Economic Research, Inc.
  21. Bravo-Ortega, Claudio & García Marín, Álvaro, 2011. "R&D and Productivity: A Two Way Avenue?," World Development, Elsevier, vol. 39(7), pages 1090-1107, July.
  22. Natalia Bailey & Sean Holly & M. Hashem Pesaran, 2014. "A Two Stage Approach to Spatiotemporal Analysis with Strong and Weak Cross-Sectional Dependence," CESifo Working Paper Series 4592, CESifo Group Munich.
  23. Francesco Moscone & Elisa Tosetti, 2009. "A Review And Comparison Of Tests Of Cross-Section Independence In Panels," Journal of Economic Surveys, Wiley Blackwell, vol. 23(3), pages 528-561, 07.
  24. Pesaran, M.H. & Smith, R., 1992. "Estimating Long-Run Relationships From Dynamic Heterogeneous Panels," Cambridge Working Papers in Economics 9215, Faculty of Economics, University of Cambridge.
  25. Pesaran, M.H., 2003. "A Simple Panel Unit Root Test in the Presence of Cross Section Dependence," Cambridge Working Papers in Economics 0346, Faculty of Economics, University of Cambridge.
  26. Mark Funk, 2001. "Trade and International R&D Spillovers among OECD Countries," Southern Economic Journal, Southern Economic Association, vol. 67(3), pages 725-736, January.
  27. Park, Jungsoo, 2004. "International student flows and R&D spillovers," Economics Letters, Elsevier, vol. 82(3), pages 315-320, March.
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