Trade, FDI, and R&D Spillovers in the OECD

This paper presents evidence of trade and FDI as conduits for R&D spillovers among industrialized countries. We find that total factor productivity of a country is enhanced significantly by R&D activities of other countries through the channel of capital goods trade; about one third of the benefits of R&D investment in a Group-7 country accrue to its trade partners within the OECD. Although no correlation is found between TFP and a measure of foreign R&D embodied in FDI, a significant correlation is found between TFP and the intensity of FDI. In addition, we obtain results suggesting the importance of absorptive capacity to international R&D spillovers