This paper pursues two objectives. The first one is to examine the interplay between R&D and foreign technology payments as two sources of technological knowledge on Canadian data. The second is to reexamine the issue of R&D spillovers in Canada by using patents as carriers of interindustry R&D externalities. The analysis is framed in a temporary equilibrium model, where the technology is represented by a translog variable cost function. The R&D stock of knowledge and the physical capital stock are considered as fixed inputs. Payments for technology are treated as a variable input, just as labor and intermediate inputs. The R&D spillover operates as a shift variable. The latter is constructed using a Canadian patent-based technology-flow matrix. The model is estimated on the panel data of 12 R&D-intensive Canadian manufacturing industries for the years 1975,1977, 1979, 1981, 1982 and 1983. The main findings of this paper are: (i) the complementarity of R&D and payments for technology; and (ii) the substantial inter-industry variability of R&D spillovers, an average excess of private over social rate of return on R&D of 50%, and the detection of key R&D externalities emitting sectors.