Trade, the Channel of Innovation: A Network Explanation on Technology Spillovers

This paper attempts to propose a more sophisticated model that addresses the structural trade mechanisms for technology spillovers across nations. This paper connects two separate models by applying network estimations representing knowledge diffusion to the Coe and Helpman model of international R D spillovers. The results of panel analysis from 1971 to 2000 on 24 OECD countries validate that the network estimator of effective size performs much better than Coe and Helpman’s estimation - the bilateralimport- share-weighted for foreign R D capital. These findings offer policy implications that help how to decide trade partners and organize them for effective absorption or creation of knowledge. Lastly, as the supplementary analysis, the model is applied to 24 non OECD countries. Due to the data limitation, it failed to compare the validity of explanatory estimators, but the result shows that international technology spillovers is the crucial to increase productivity, even more than domestic R D expenditure in developing countries.