Spillovers, Linkages and Technical Change

Abstract

Using US input–output data for the period 1958–87, I find strong evidence that industry total factor productivity (TFP) growth is significantly related to the TFP performance of the supplying sectors, with an elasticity of almost 60%. R&D intensity is also found to be a significant determinant of industry TFP growth, with an estimated return of about 10–13% and the return to embodied R&D is estimated at 43%. Direct productivity spillovers, from the technological progress made by supplying sectors, appear to be more important than spillovers from the R&D performed by suppliers. They also play a key role in explaining changes in manufacturing TFP growth over time. Changes in the contribution made by direct productivity spillovers to TFP growth account for almost half of the slowdown in TFP growth in manufacturing from 1958–67 to 1967–77, and for 20% of the TFP growth recovery in this sector from 1967–77 to 1977–87. Changes in R&D intensity and embodied R&D are relatively unimportant in explaining movements in manufacturing TFP growth over these three periods.