R&D, international technical diffusion and total factor productivity

Equations are presented that relate the long-run evolution of countries' total factor productivity to domestic and to foreign R&D capital. A cointegration analysis is performed on a panel of pooled annual time series concerning 21 industrial countries during the period 1965-1991. The results show the influence of foreign R&D to be, on average, stronger than that of domestic R&D. In the case of the large economies the latter influence is, however, more important. These results are explained by the fact that large economies can benefit from more important domestic technology spillover effects. They are also best placed to take up most technological leader positions. A majority of countries in the sample are, however, small and open and mainly technological followers. There is also evidence of a decrease in the influence of R&D in the mid-1970s, without significant recovery afterwards. This is explained by the occurance of decreasing returns to innovation and to imitation within a technological system based on assembly-line production, and by institutional inertia that retard the reskilling of the labour force required for a transition to anew system based on information technology.