Intersectoral and international R&D spillovers

By , Professor of microeconometrics at Maastricht University and Professorial Fellow at UNU-MERIT.

This post is co-authored by Rene Belderbos, KU leuven.

It is well established in the literature that there are intra- and inter-sectoral knowledge spillovers, which are national and cross-border, and mean that the social rate of return from R&D exceeds the private rate of return. It is essential to take such spillovers into account when examining in the SIMPATIC project the Europe-wide impact of R&D policies. One of the challenges is to include estimates of intra-industry, inter-industry and international spillovers in order to assess the country- and Europe-wide productivity and growth effects of R&D policies and R&D multipliers.

This paper reviews the literature on (international) R&D spillovers and the various methods for measuring such spillovers that have been proposed. The review suggests a number of stylised facts that indicators of knowledge spillover should take into account. These stylised facts relate to the importance of the strength of the technology at the source of the spillover, the absorptive capacity of the receiver of the spillover, the potentially negative R&D spillovers if firms are direct competitors on product markets, the possibility of two-way international knowledge flows arising from foreign direct investment, and the often ignored effects of spillovers from customers to suppliers. Spillovers are also partly endogenous, because firms position themselves as best they can to benefit from technology spillovers.

The variety of potential transmission channels and transmission effects – all of which bring with them problems of measurement, suggests that spillover matrices that are sufficiently broad to capture their correlated effects should be calculated. There is evidence that patent-based indicators are better able to capture knowledge spillovers than trade-based indicators. The paper proceeds by discussing the advantages and disadvantages of patent-based indicators of knowledge spillovers and concludes that the advantages outweigh the disadvantages. The great advantage of patent (citation) based measures is that they allow for construction of spillover matrices that cover in a systematic manner the intra-sector, inter-sector and international aspects. Patent citation data can be used to calculate direct measures of flows of technological knowledge, while the intensity of patent citations in different industries and countries can also be taken as a correlate of various other transfer mechanisms affecting knowledge spillovers.

The paper subsequently describes two available matrices of inter-sectoral and international spillover weights based on patent citation data and classification of technologies into sectors of origin and sectors of use, which are potential inputs for the micro-macro interaction in the SIMPATIC project. Finally, we offer suggestions for additional patent-based knowledge spillover matrices, using patent citations between sectors of use (citing patents) and sectors of origin (cited patents). This would allow knowledge spillovers from manufacturing industries to be extended to service industries – a feature that is generally difficult to incorporate but which can be important in the context of the macro analyses in the SIMPATIC project. To account for international rent spillovers, this IOM/SOU matrix could possibly be complemented by the world input-output database.