Recent theoretical arguments suggest that international trade plays an important role as a transmission channel for R&D spillovers to developing countries. In Discussion Paper No. 1133, David Coe, Research Fellow Elhanan Helpman and Alexander Hoffmaister examine the extent to which developing countries that invest little in R&D themselves benefit from R&D in the industrial countries. The paper provides quantitative estimates of these effects for a group of 77 developing countries based on equations that relate a developing country's overall productivity to the foreign R&D capital stock, the share of imports from industrial countries in the developing country's GDP, and the secondary school enrolment rate.

The results imply that a developing country's total factor productivity is larger the greater is its foreign R&D capital stock, the more open it is to trade with the industrial countries, and the more educated is its labour force. In addition, a developing country has higher productivity when its trade is more biased towards industrial countries that have large cumulative experiences in R&D. A developing country with a larger import share in GDP or a higher secondary school enrolment rate is also more productive. The foreign R&D capital stock only affects productivity when interacted with the import share. This implies that a country that is more open to trade derives a larger marginal benefit from foreign R&D, and a country that has a larger foreign R&D capital stock gains more productivity from a marginal percentage increase in imports. The estimated elasticities suggest that the R&D spillovers from the North to the South are significant and substantial.

North-South R&D Spillovers
David T Coe, Elhanan Helpman and Alexander W Hoffmaister

Discussion Paper No. 1133. February 1995 (IT)