Productivity, trade and the R&D content of intermediate inputs

This paper explores a novel way to evaluate the extent to which R&D knowledge embodied in intermediate inputs correlates with productivity at the industry level. We propose the concept of the R&D content of intermediates, which represents the knowledge stock embodied in the intermediate inputs used in production. Using a sample of 32 countries and 13 manufacturing industries we compute the elasticity of industry-level TFP with respect to the R&D content of intermediates. We find that among high-R&D industries, the R&D embodied in inputs purchased from the own industry is significantly associated with industry-level TFP. In this case, both own-industry domestic inputs as well as those imported from the G5 countries are relevant. In contrast, intermediate input trade does not appear to be a significant channel of R&D diffusion among low-R&D industries.

► This paper studies the correlations between R&D embodied in intermediates and TFP. ► We propose a new concept of R&D content of intermediate inputs used in production. ► We find that embodied R&D is significantly associated with industry-level TFP. ► Foreign inputs from the same industry play a key role for R&D intensive sectors. ► France, Germany, Japan, UK, and USA appear to be primary sources of R&D knowledge.