The importance of absorptive capacities: productivity effects of international R&D spillovers through intermediate inputs

Trade in goods and services is likely to be an important channel for international knowledge diffusion. This paper considers the extent of R&D spillovers through intermediate inputs for a sample of up to 40 developed and developing countries at the industry level. Results suggest that such spillovers are present and are economically important. We find that countries and industries initially further behind the technological frontier enjoy stronger foreign R&D spillovers. Furthermore, foreign R&D spillovers are stronger in countries with greater absorptive capacity as measured by average years of secondary schooling and R&D spending.