through trade, building on previous work by Coe and Helpman (1993) and by Coe, Helpman and Hoffmeister (1994). Not surprisingly, they find a regional pattern of technology diffusion which closely follows regional trade linkages. While there appears to be a strong intra European R&D diffusion effect (especially within continental Europe) European countries as a group do not generate substantial spillovers towards other countries. Also not surprisingly the US appears to be the only large economy to generate substantial R&D spillovers on all other countries.

Nadiri and Kym (1996) carry out a careful analysis of the effects of R&D spillovers on factor demand and on the pattern of trade. They find that the large European countries exchange among themselves a substantial amount of R&D spillovers through imports, with Germany acting as the major net supplier and Italy as the major net beneficiary. Japan and Canada are net beneficiaries as well and the US is a net supplier of technology spillovers among the G7 countries.

Lichtenberg and van Pottelsberghe de la Potterie (1996) provide evidence on the role of outward foreign direct investments (FDI) as vehicles of technology sourcing. The hypothesis they test is that firms locate FDI in technology intensive countries in order to benefit directly from local innovation spillovers. When measuring output elasticities of domestic R&D capital stocks to outward FDI flows the evidence of regional patterns is much more limited; indeed in almost all bilateral relationships investment in the US dominates investment in other countries as a source of technology diffusion. Some regional effects can be found in small European countries with respect to investment in the UK. This evidence is consistent with the view that, along with regional patterns of the organization of trade, an increasing process of globalization of markets through FDI is taking place, especially among the OECD countries (Reinicke 1996).

The above results suggest a regional effect of technology diffusion linked to trade flows. The question then arises as to whether these effects are determined by the same factors which shape regional trade patterns. Here the evidence is still very limited. Sjoholm (1996) looks at the role of geographical proximity and international trade in the international transfer of knowledge in the case of Sweden. Geographical proximity may be important to the extent that knowledge spreads through informal contacts and these may be limited by distance, as Breschi and Malerba (1996) also find. Distance is found to be related to technology transfers measured by the number of patent citations. However, an extreme bound analysis finds that only trade is a robust explanation of technology transfers.

Baldwin and Seghezza (1996) consider the effect of regional agreements on growth induced by technology accumulation: i.e. they look at the reverse causality between regional patterns and technology with respect to the literature reviewed above. They find "weak evidence that EU membership allowed member states to enjoy a higher level of (TFP) ... than they would have otherwise. In other words EU membership led to knowledge-led growth effects" (p.<sup>1</sup> 8) In the above studies technology is measured directly through cumulated R&D expenditure or indirectly through TFP. Archibugi and Pianta (1992, 1994) look at technological convergence using indicators of technological activity such as R&D/GDP and patents/exports. They find that production in advanced countries has become more technology intensive over the last two decades while the group of countries capable of innovating at the frontier of technological specialization has widened. However, they also report increasing divergence among the group of top R&D investors. Finally, they find that size is important in defining the direction of 5