Near or far? Spillovers in patenting, quality upgrading, and product releases

The diffusion of knowledge plays a central role in endogenous growth theories. In these models, new knowledge can be generated from pre-existing knowledge produced anywhere in the world. Endogenous growth theories rely on a broad set of assumptions that have not been tested sufficiently, especially in the context of developing economies. This paper empirically assesses the scope and direction of knowledge spillovers in patenting at the country level and, separately, in product releases and quality upgrading by firms. The first set of exercises tests whether the cumulative knowledge specifications of the knowledge production function can explain international patterns of patenting or whether only domestic research and development is necessary to produce patents. The second set of exercises analyses whether sound product-quality upgrading and the introduction of new products depend on these same variables at the industry level across countries. The evidence supports the view that existing stocks of domestic and international knowledge boost national innovation and entrepreneurship in the form of product innovation. More specifically, the evidence suggests that domestic and international knowledge spillovers are positive, but international spillovers can be negative for firms that are far from innovative firms in terms of productivity.