International R&D spillovers: the role of financial markets

Abstract

This article examines the role of financial markets as a catalyst for international technology diffusion using a panel data set on 72 countries over the period 1981 to 2005. The results suggest that countries with better developed financial markets benefit more from foreign R&D stocks to promote domestic productivity growth. This finding is robust to the inclusion of proxies for human capital and domestic R&D stocks as alternative measures of absorptive capacity.

Notes

¹ See Keller (2004) for an extensive discussion of the various channels through which technology diffuses across countries.

² The same strategy was applied by Coe et al. (1997) and Kwark and Shyn (2006).

³ The data are not transformed into indices as done by Coe and Helpman (1995) as this would lead to a misspecification of Equation 1 as stressed by Lichtenberg and van Pottelsberghe de la Potterie (1998).

⁴ The analysis is also carried out employing the measures proposed by Coe and Helpman (1995) and Lichtenberg and van Pottelsberghe de la Potterie (1998). As the results are very similar they are not reported in this article.

⁵ School life expectancy may better capture human capital as it takes into account all educational levels.

⁶ For years with missing data the values are interpolated.

⁷ All equations are estimated with ordinary least squares. Employing cross-section weights produces results that are quantitatively very similar and qualitatively identical.

Table 1. Regression results

⁸ Coe et al. (1997) employ the GDP share of equipment and machinary imports whereas I employ the GDP share of total imports.

⁹ Coe et al. (1997) encounter the same problem and attribute it to multicollinearity between the enrollment ratio and the interaction term between the enrollment ratio and foreign R&D capital.

¹⁰ Griffith et al. (2000) obtain more positive results when employing domestic R&D expenditure rather than the accumulated R&D stock.

¹¹ Coe et al. (1997), for example, obtain a value of 0.06 in their preferred specification.