Foreign R&D spillovers to the USA and strategic reactions
Thomas Ziesemer
#2021-015
We re-consider the traditional result of zero or negative foreign R&D
spillovers or strategic reactions to the USA using accumulated shocks in
a vector-error-correction model (VECM) for the period 1963-2017. Foreign
private and public R&D stocks have a positive and statistically
significant effect on US public R&D and labour-augmenting technical
change (LATC). US private R&D reacts positively to foreign private R&D
and negatively to foreign public R&D shocks. Foreign public and private
R&D react positively to US public R&D. All variables react positively to
US private R&D. From the time profile of the simulated VECM, we
calculate the sum of discounted (at 4%) net gains for (i) additional
private and public US R&D, and (ii) for policies reacting to foreign
private and public R&D shocks with additional domestic private and
public R&D. Additional private and public US R&D expenditures have very
high internal rates of return. R&D investments in reaction to shocks
from foreign R&D are profitable. All LATC reactions are transitional
suggesting semi-endogenous growth for the USA.
Keywords: Growth, productivity, R&D, reaction functions, spillovers, CVAR
JEL Classification: C51, O30, O38, O47, O51