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International R&D spillovers and unobserved common shocks

  • Diego-Ivan Ruge-Leiva

This paper investigates the effects of the domestic and foreign R&D weighted by bilateral imports on productivity accounting for the heterogeneous impact of unobserved micro and macroeconomic common shocks, which are modeled in a multifactor error structure. Using a panel of 50 economies from 1970-2011, I find that when unobserved common shocks are not regarded, as has been done by the literature in this area, estimates of domestic R&D and foreign R&D might be biased and inconsistent. Once unobserved common shocks 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 be considered when estimating returns to domestic R&D and international R&D spillovers.

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File URL: http://www2.uah.es/iaes/publicaciones/DT_08_14.pdf
File Function: First version, 2014
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Paper provided by Instituto Universitario de Análisis Económico y Social in its series Working Papers with number 08/14.

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Length: 74 pages
Date of creation: Jul 2014
Date of revision:
Handle: RePEc:uae:wpaper:0814
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  1. 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.
  2. Nick Bloom & Stephen Bond & John Van Reenen, 2006. "Uncertainty and Investment Dynamics," CEP Discussion Papers dp0739, Centre for Economic Performance, LSE.
  3. 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.
  4. Dominique Guellec & Bruno Van Pottelsberghe, 2004. "From R&D to Productivity Growth: Do the Institutional Settings and the Source of Funds of R&D Matter?," Working Papers CEB 04-010.RS, ULB -- Universite Libre de Bruxelles.
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  6. Pesaran, Hashem & Chudik, Alexander, 2013. "Common Correlated Effects Estimation of Heterogeneous Dynamic Panel Data Models with Weakly Exogenous Regressors," Cambridge Working Papers in Economics 1317, Faculty of Economics, University of Cambridge.
  7. Eberhardt, Markus & Helmers, Christian & Strauss, Hubert, 2010. "Do spillovers matter when estimating private returns to R&D?," Economic and Financial Reports 2010/1, European Investment Bank, Economics Department.
  8. 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.
  9. Nicholas Bloom, 2007. "Uncertainty and the Dynamics of R&D," Discussion Papers 07-021, Stanford Institute for Economic Policy Research.
  10. M. Hashem Pesaran & L. Vanessa Smith & Takashi Yamagata, 2008. "Panel Unit Root Tests in the Presence of a Multifactor Error Structure," CESifo Working Paper Series 2193, CESifo Group Munich.
  11. David T. Coe & Alexander W. Hoffmaister, 1999. "Are There International R&D Spillovers Among Randomly Matched Trade Partners? A Response to Keller," IMF Working Papers 99/18, International Monetary Fund.
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  15. Alexander Chudik & Kamiar Mohaddes & M. Hashem Pesaran & Mehdi Raissi, 2013. "Debt, Inflation and Growth - Robust Estimation of Long-Run Effects in Dynamic Panel Data Models," CESifo Working Paper Series 4508, CESifo Group Munich.
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  17. 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.
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  24. M. Hashem Pesaran, 2004. "General Diagnostic Tests for Cross Section Dependence in Panels," CESifo Working Paper Series 1229, CESifo Group Munich.
  25. Donald W.K. Andrews, 2004. "Cross-section Regression with Common Shocks," Yale School of Management Working Papers ysm401, Yale School of Management.
  26. 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.
  27. repec:hal:journl:peer-00796743 is not listed on IDEAS
  28. M. Hashem Pesaran, 2004. "Estimation and Inference in Large Heterogeneous Panels with a Multifactor Error Structure," CESifo Working Paper Series 1331, CESifo Group Munich.
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