Interindustry and International "R&D Spill-overs". Externalities of Research and Development

Innovation based on R&D has emerged as a major factor determining the competitive performance of business firms. However, R&D activities may have an observable impact on economic performance not only in the firms performing those activities, but may "spill over" to other firms, possibly located in other industries or nations. The past two decades witnessed the evolution of a large body of economic literature attempting to quantify own rates of return on R&D within an industry as well as rates of return on external R&D. Although in most cases direct comparison of the estimates presented in those studies is impossible, a large number of studies indicates significant and substantial rates of return both on own and external R&D capital. Moreover, there is evidence that social rates of return considerably exceed private rates of return. The present study reports first estimates of own rates of return on R&D in Austrian manufacturing. Contrary to the estimation results for the 1970s, significant positive own rates of returns on R&D were estimated for the 1980s. This result seems to be due to high rates of return on the development component of R&D expenditure. At present, research on international R&D Spill-overs is much less developed than that on interindustry Spill-overs. However, recent advances in economic theory – in particular the development of endogenous growth theory – provide a new and consistent framework to analyze the impact of transborder knowledge Spill-overs on key macro-economic variables. So far, this literature has treated knowledge either as a purely "national" or "international" public good. The present study outlines the results derived from a new endogenous growth model allowing for interaction between "national" and "foreign" knowledge capital ("absorptive capacities"). These developments are expected to lead to new testable models of international R&D Spill-overs. It is no surprise that the scarce empirical evidence regarding international R&D Spill-overs presented so far is mixed. However, recent studies tend to support the hypothesis that substantial international R&D Spill-overs do in fact exist. The study concludes that the existence and spatial structure of R&D Spill-overs is relevant for the design of efficient R&D subsidies at the national or international level.