Innovation, international technological diffusion and the changing influence of R&D on productivity

This paper analyses the relationship between OECD countries' business sector total factor productivity and domestic and foreign R&D efforts during the period 1961-1991. A sensitivity analysis is performed by making use of alternate estimations of specifications in growth terms and in level terms. The results are shown to be robust. They show that the influence of international technological diffusion is, on average, substantially stronger than that of domestic R&D. In the case of the large economies, however, the latter influence is found to be more important. A structural stability analysis provides evidence of a decrease in the estimates in the mid-1970s, without significant recovery afterwards. Various long-run supply effects appear to have contributed. The discontinuous nature of the reduction does indicate, however, that these were reinforced by macroeconomic disturbances at the demand side.