Working Paper: NBER ID: w4682
Authors: Jeffrey L. Bernstein; Pierre Mohnen
Abstract: A great deal of empirical evidence shows that a country's production structure and productivity growth depend on its own R&D capital formation. With the growing role of international trade, foreign investment and international knowledge diffusion, domestic production and productivity also depend on the R&D activities of other countries. The purpose of this paper is to empirically investigate the bilateral link between the U.S. and Japanese economies in terms of how R&D capital formation in one country affects the production structure, physical and R&D capital accumulation, and productivity growth in the other country. We find that production processes become less labor intensive as international R&D spillovers grow. In the short-run, R&D intensity is complementary to the international spillover. This relationship persists in the long-run for the U.S., but the Japanese decrease their own R&D intensity. U.S. R&D capital accounts for 60% of Japanese total factor productivity growth, while Japanese R&D capital contributes 20% to U.S. productivity gains. International spillovers cause social rates of return to be about four times the private returns.
Keywords: R&D; spillovers; productivity; international trade; capital formation
JEL Codes: O31; F23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| US R&D capital (O39) | Japanese total factor productivity growth (O49) |
| Japanese R&D capital (O39) | US productivity gains (O49) |
| International R&D spillovers (O39) | production processes become less labor-intensive (L23) |
| R&D intensity (O32) | international spillovers (F69) |
| International spillovers (F69) | social rates of return (H43) |