is positive under particular conditions. Thus, in our empirical section we depart from traditional estimation of linear and separable functional form of the relationship between R&D, IPRs, and human capital.

# 3 Empirical Evidence

The theoretical model provides testable hypotheses. In brief, we expect that international dierences in R&D as a share of GDP depend on human capital, intellectual property rights (including enforcement), and non-linear interactions between these variables. The econometric models (discussed below) that assess the validity of our theoretical predictions rely on data on R&D, educational attainment, and IPRs that are commonly used in empirical applications.

## 3.1 Data and identication

The historical R&D series from 1960-2000 were compiled by Lederman and Saenz (2005) from various sources, but the data are derived ultimately from national surveys that use a common denition of R&D expenditures that includes fundamental and applied research as well as experimental development.<sup>4</sup> The data thus include not only investments in labor and materials needed to conduct basic scientic research in advanced countries, but also corresponding investments in the adoption and adaptation of existing technologies often thought more germane to developing countries. The series were constructed from data published by UNESCO, the OECD, the Ibero American Science and Technology Indicators Network (RICYT) and the Taiwan Statistical Data Book. The Lederman and Saenz data were updated to the latest year available for 2000-2004 from the UNESCO web site. We work with ve year averages of R&D as a share of GDP from 1960-2004.

The educational attainment data come from Barro and Lee (2001). More specically, we use the variable on the average years of education of the adult population (25-64 years) as the proxy of total human capital. These data are available every ve years, beginning in 1960, thus corresponding to the initial year of each ve-year average of the R&D variable.

We use the aggregate Ginarte-Park IPR index (Ginarte and Park 1997), which is the simple average of ve component indexes concerning each country's IPR laws in terms of its coverage and enforcement. The index's ve components are the coverage of patent laws across seven industries, membership in three international agreements, loss of protection due to three potential reasons

> 4See UNESCO Statistical Yearbook (1980) p. 742. The denition of R&D is the same across secondary sources, including the OECD, Ibero American Science and Technology Indicators Network (RICYT), World Bank, and Taiwan Statistical Yearbook. All these organizations follow the denitions provided by the Frascati Manual with the 2002 edition published by the OECD being its latest incarnation. For the purposes of this study, it is worth reproducing here the denition of experimental development, which is systematic work, drawing on existing knowledge gained from research and/or practical experience, which is directed to producing new materials, products or devices, to installing new processes, systems and services, or to improving substantially those already produced or installed (OECD 2002, p. 30).

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