On indirect trade-related R&D spillovers: The “Average Propagation Length” of foreign R&D

The paper estimates the impact on Total Factor Productivity of trade-related R&D spillovers by accounting for the economic distance between countries. The Average Propagation Length foreign R&D covers to reach a domestic country is used in building the foreign available R&D stock and to estimate its TFP impact vs. that of the domestic R&D stock. With respect to 20 OECD countries in the period 1995–2005, the impact on TFP of the available foreign R&D stock is greater than that of the domestic one. Results support the models that recognize indirect trade-related R&D spillovers and provide for them a more accurate interpretation.

► Indirect foreign R&D spillovers depend on the economic distance among countries.
► Economic distance is related to the number of “trade-rounds” separating countries.
► To measure this effect, we apply the input-output notion of Average Propagation Length.
► We estimate the TFP elasticity w.r.t. foreign APL-weighted R&D stocks for 20 OECD countries over 1995–2005.
► Considering only direct trade flows underestimates the productivity impact of foreign R&D.
► Retaining direct and indirect trade flows indistinguishably overestimates the same impact.