International Technology Diffusion

This paper investigates the effect of foreign research and development (R&D) stock on the productivity of Central and Eastern European (CEE) countries. We employ industry-level panel data on twenty-two manufacturing industries from six CEE countries from 1995 to 2007. The findings indicate that foreign R&D contributes significantly to productivity in CEE countries—foreign R&D stock elasticities of productivity are around ten times greater than those of the industry's internal R&D. The results are robust to various measures of productivity, while the strongest diffusion of technology occurs through imports and not through intermediate imports or foreign direct investment. The effect of R&D on productivity growth is greater in medium-tech industries where the level of productivity is closest to that of developed economies. There is also remote evidence of the role of human capital in the better absorption of foreign R&D.