Trade and International R&D Spillovers among OECD Countries

1. Introduction Does a country's trading partners affect its long-run growth? While many authors such as Edwards (1998) have found that relatively open economies tend to grow faster than relatively closed economies, it is less clear whether a country's trading partners affect its long-run growth. One plausible way trade partners may influence long-run growth is through the transfer of knowledge. Recent empirical work reveals an apparent link between international research spillovers and import patterns. Coe and Helpman (1995) uncover empirical evidence of a relationship between domestic productivity and import-weighted foreign research stocks. Using slightly different approaches, Coe, Helpman, and Hoffmaister (1997); Engelbrecht (1997a, b); and Lichtenberg and van Pottelsberghe de la Potterie (1998) find similar results. By linking knowledge transmission to import patterns, these results suggest that trade partners do influence long-run growth. However, these results have come under some criticism. Keller (1998) questions whether any of these results can be interpreted as indicating a link between knowledge flows and imports. He finds that significant international spillovers are still estimated from foreign research-anddevelopment (R&D) stocks constructed using randomly assigned weights. He interprets this result to imply that the choice of weights is not indicative of the knowledge transmission mechanism. While this is an ingenious test, Keller is careful to point out that his results may be due to the time-series properties of the data. As with the other studies, Keller focuses on the longrun relationship between the nonstationary total factor productivity and R&D data series but estimates the relationship using standard OLS techniques. Kao and Chiang (1998) demonstrate that the ordinary-least-squares (OLS) estimator in a cointegrated panel is asymptotically normal but with a nonzero mean. Kao, Chiang, and Chen (1999) apply panel cointegration methods to Coe and Helpman's estimation and conclude that the evidence of a relationship between imports and research spillovers is weak. This paper reexamines the empirical relationship between trade and R&D spillovers using the panel cointegration techniques developed by Kao and Chiang (1998). As this paper shows, accurate estimates and inference tests of the cointegrating relationship indicate no long-run relationship between imports and international flows of knowledge, confirming Kao, Chiang, and Chen's (1999) results. Keller's experiment is reconsidered next. This paper finds that when panel cointegration techniques are employed, the choice of weights used in the construction of the foreign R&D stocks is informative. As a final contribution, this paper considers exports as an alternative transmission mechanism. Ben-David and Loewy (1998) describe how even the technological leaders may gain knowledge spillovers from their export relationships. The very strong evidence presented here supports their model. The new evidence suggests that previous studies may have overstated the role of imported inputs in international R&D spillovers while understating other transmission mechanisms. The rest of the paper proceeds as follows. Section 2 outlines a simple model of innovation and productivity growth. Section 3 discusses the nonstationary nature of the data and the recent advances in panel unit root tests and panel cointegration. A reevaluation of the relationship between randomly generated import patterns and international spillovers appears in section 4. Section 5 assesses the role of exports in transmitting international research spillovers. Section 6 concludes with a brief summary and suggestions for further research. 2. Model While the existence and transmission of international research spillovers plays a role in a variety of models of trade and growth, the empirical tests of international research spillovers are usually motivated by appeals to endogenous growth models, such as those in Grossman and Helpman (1991). …