The value of knowledge spillovers in the U.S. semiconductor industry

This paper aims at quantifying the economic value of knowledge spillovers by exploring information contained in patent citations. We estimate a market valuation equation of the U.S. semiconductor firms during the 1980s and 1990s, and find an average value of $0.6 to 1.2 million “R&D-equivalent” dollars for knowledge spillovers embodied in one patent citation. For an average semiconductor firm, such an estimate implies that the total value of knowledge spillovers the firm received during the sample period can be as high as half of its actual total R&D expenditures in the same period. This provides a direct measure of the economic value of social returns or externalities of relevant technological innovations. We also find that the value of knowledge spillovers declines as the size of firm's patent portfolio increases, and that self citations are more valuable than external citations, indicating a significant amount of tacit knowledge or know-how spillovers that occur within the firm.