International R&D Spillovers and Trade Expansion: Evidence from East Asian Economies

Abstract

I. Introduction The rapid growth experience of the Asian newly industrialized economies (NIEs) and the member countries of ASEAN presents an important case study which suggests conditions required for a developing country to catch up. The catch-up hypothesis asserts that in comparisons across countries, the growth rates of productivity in any long period tend to be inversely related to the initial levels of productivity. The basic idea of the hypothesis is related to the level of technology embodied in capital goods. A follower, namely a country whose productivity level is lower can install new capital goods which embody the frontier of technology. Consequently, a follower has the potential to make a larger leap in productivity levels. However, this simple hypothesis also needs qualification. Abramovitz (1986) demonstrated that differences in productivity levels among countries create a strong potentiality for subsequent convergence of productivity levels, provided that countries have an adequate social capability to absorb more advanced technologies. According to Abramovitz (1990), social capability refers to a country's political institutions, its political integration, and the effective consensus in favour of development. Subsequently, with the advent of the new growth theories, a number of studies have provided results supporting conditional convergence. (See Barro and Sala-i-Martin 1991, 1992; Mankiw, Romer, and Weil 1992). Barro and Sala-i-Martin (1995) demonstrated that the growth rate of real per capita gross domestic product (GDP) depends positively on the initial quantity of human capital in the form of educational attainment and health, and negatively on the ratio of government consumption to GDP and political instability. In the endogenous growth framework, many growth models have suggested that a country's productivity depends not only on its own investment in RD Barro and Sala-i-Martin 1995). Since the internationalization of the world economy has reduced the importance of national borders, it is imperative to take into account the influence of international technological spillovers on productivity. In terms of empirical analysis, Bernstein and Mohnen (1994), Branstetter (1996), Coe and Helpman (1995), and Park (1995) explored the effects of international R&D spillovers via production within developed countries. On the other hand, there is little research analysing international R&D spillover effects on developing countries. Two exceptions are Coe, Helpman, and Hoffmaister (1997) who investigated the link between the total factor productivity (TFP) of seventy-seven developing countries and the foreign R&D capital stock, and Basant and Fikkert (1996) who estimated the production function of Indian firms including R&D capital stock in developed countries. However, there is no study focusing on the link between the international R&D spillovers and the rapid industrialization of East Asian economies. (1) This article differs from the existing studies in two important ways. First, it focuses on East Asian economies for the purpose of estimating the relationship between productivity and international R&D spillovers. Second, in order to examine whether there are interactions between the international R&D spillovers and both international trade and foreign direct investment, these factors--as channels of spillovers--are specified in the empirical equations. This article is organized as follows. Section II contains a theoretical justification of the empirical specifications. Section III presents the method of estimation and data description. Estimation results are presented in Section IV. Section V contains concluding remarks. II. An Empirical Specification Coe and Helpman (1995) presented an empirical model based on theoretical models of innovation-driven growth. …