How trade patterns and technology flows affect productivity growth

Earlier studies of spillovers from international research and development (R&D) suggest how economies benefit from R&D conducted abroad. To the extent that countries importing new technologies do not pay in full for the increased variety in intermediate inputs in production, they are reaping an external, or spillover, effect. The author analyzes a particular mechanism through which economies benefit from foreign R&D. The author estimates the extent to which a country benefits from imports of intermediategoods that embody new technology -- the result of foreign investments in R&D. He distinguishes this mechanism from others unrelated to international trade. Using industry-level data for eight OECD countries (Sweden and the G-7 countries) between 1970 and 1991, he estimates the underlying model of trade and growth. This empirical analysis leads to several findings about spillovers from international R&D. First, the productivity effects of foreign R&D vary substantially, depending on which country is conducting the R&D. The quality of newly created technology varies. Second, as a factor influencing productivity, a country's own R&D is more important than that of the average foreign country. It is difficult to separate the effect of importing intermediate goods with embodied technology from a more general spillover effect; often both are present. Third, in the author's sample of industrial countries, international trade contributes about 20 percent of the total effect on productivity from foreign R&D investments. The author conjectures that this effect could be higher for less industrialized countries importing from OECD countries, but stresses that alternative mechanisms (such as foreign direct investment) should be included when estimating the effects of international trade in the international diffusion of technology.