Working Paper: CEPR ID: DP4479
Authors: Laura Bottazzi; Giovanni Peri
Abstract: In this Paper we estimate the dynamic relationship between resources used in R&D by some OECD countries and their innovation output as measured by patent applications. We first estimate a long-run cointegration relation using recently developed tests and panel estimation techniques. We find that the stock of knowledge of a country, it?s R&D resources and the stock of international knowledge move together in the long run. Then, imposing this long-run relation across variables we analyse the impulse response of new ideas to a shock to R&D or to a shock to innovation by estimating an error correction mechanism. We find that internationally generated ideas have a very significant impact in helping innovation in a country. As a consequence, a positive shock to innovation in a large country as the US has, both in the short and in the long run, a significant positive effect on the innovation of all other countries.
Keywords: Error Correction Mechanism; Innovation; International R&D Spillovers; Panel Cointegration
JEL Codes: C23; F43; O31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Domestic R&D resources (O32) | Stock of ideas generated (O36) |
| International knowledge (O36) | Domestic innovation output (O39) |
| Domestic R&D resources (O32) | Domestic innovation output (O39) |
| International learning (F53) | Domestic innovation (O39) |
| Positive shock to US stock of knowledge (D80) | Innovation in other OECD countries (O39) |
| Positive shocks to US R&D resources (O39) | Knowledge generation in other countries (O36) |