1 Introduction
Solow (1957) was the rst to argue that increasing investments in physical or human cap- ital with a given rate of technological process do not lead to sustained economic growth. He stated that technological change is the main factor behind economic growth. Nowa- days there is a consensus that physical and human capital accumulations alone are not able to explain the large variation of growth rates in various countries (Easterly, Levine 2001)1. Even if domestic resources are not invested into research and development
(R&D) countries are able to gain from global investments into R&D. The well-known properties associated with technology / knowledge (non-rival, excludable) increase the possibility for countries to bene t from foreign R&D investments. According to Eaton and Kortum (1999) and Keller (2002), the major sources of technological change leading to productivity growth in the OECD countries do not originate from domestic invest- ments but from foreign investments. Keller (2001) states that international di¤usion of technology is the major determinant of per capita income in the world. In the case of developing countries, the possibility for technological di¤usion is high because of the technological gap. If developing countries are able to absorb technology, di¤usion provides them also an opportunity for economic growth.
1Of course this does not mean that e.g. the in uence of education should be underrated. Considering
developing countries, domestic technical inventions or bene ting from di¤usion of technology are hard to achieve without domestic skills.
Keller (2001) divides the process of technological di¤usion into two mechanisms: active and passive spillover. The main di¤erence between these two is that in the rst mechanism the importing country receives a blueprint that is used in the domestic pro- duction process. In the second mechanism domestic inventors do not get familiar with the technology associated with traded products; they only observe the manufactured outcome of it. This means that they have access to the outcome of the foreign R&D. Both cases entail positive spillover externality, which means that technological knowl- edge is cheaper than the original expenses to the inventor. In this study our focus is on passive spillovers. These can be related to international trade mainly trough trade in intermediate goods, and foreign direct investments (FDI) through subsidiaries by foreign owned companies. These two channels can also increase active spillovers by increasing the amount of products and skills to be used and re ned. The possibility of these spillovers increased in the 1990 s when globalization was again rapid. World trade in goods and services nearly doubled between 1990-2001 (WTO 2002). The growth of FDI between countries was especially strong between 1996 1999 when the growth rate was about 40% per year (UNCTAD 2001).
International technology di¤usion has been studied traditionally by R&D spillover regressions (Mohnen 2001, Keller 2001). With these regressions one measures how de- pendent total factor productivities (TFP) or GDPs of di¤erent countries are on di¤erent variables; especially on domestic and foreign R&D stocks. Examples of papers that an- alyze technological di¤usion through international trade are Coe and Helpman (1995, henceforth CH), Coe, Helpman, and Ho¤maister (1997), and Keller (1997)2. The com-
mon factors of these papers are that they calculate foreign R&D stocks by weighting R&D stocks of foreign countries with bilateral trade ows between the domestic and the foreign technology exporting country. Keller s (1998) results raise serious doubts about
2The complicated relationship between imports and productivity must be noted. Productivity
growth triggers economic growth and increases income. This in turn leads to an increase in imports. Also increased productivity in an import-substituting industry can crowd out imports in the domestic market and thus have a negative impact. This means that causality remains unclear. One way we have been trying to overcome this problem is by lagging indirect R&D spillovers and nding out that the optimal lag is two years.
the validity of this procedure. He repeats CH s (1995) regressions with counterfactual import shares, and nds similar high coe¢cients and levels of explained variation when these counterfactual import shares are used instead of the actual shares.
More criticism has been set on CH (1995) by Lichtenberg and van Pottelsberghe de la Potterie (1998, henceforth LP). They show that import-share weighting su¤ers from aggregation bias and is highly sensitive to potential merger between countries3. Their
conclusion is that what really matters is the intensity of R&D investments, by which they mean the share of R&D investments in the exporting country to the exporting country s GDP. Luintel and Khan (2004) introduce a further issue to the discussion of spillovers. They show that there exists signi cant heterogeneity in the dynamics of knowledge di¤usion across the G10 countries. In addition, one important paper among others is Lumenga-Neso, Olarreaga, and Schi¤ (2001, henceforth LOS). They argue that R&D spillovers can take place between countries that do not have bilateral trade. This can be due to indirect R&D spillovers. These indirect spillovers can occur because the knowledge-receiving country does not have to trade with the country from which it receives spillovers directly. Instead the receiving country can gain indirectly from a third country that has direct trade with a country that trades with the technology exporting country. By showing this they also explain why the results of Keller (1998) di¤er from the ones of CH (1995).
We follow in our calculations the proposition of LP (1998), and take into account the R&D investment intensity in selected OECD countries (section 3.1). We also take into account the possibility of indirect spillovers (LOS (2001)), and repeat the regression with a speci ed model by introducing indirect spillovers (section 3.2). Following these methods provides us a way to study trade-related spillovers in the 1990 s.
In this paper we are especially interested in technological di¤usion through trade in services. International trade in goods and FDI are usually connected with passive spillovers. To categorize trade in services is more di¢cult. According to WTO, trade
3LP (1998) point out that why should the foreign R&D stock of a receiving country increase when
in services can be divided into four modes: cross-border trade, consumption abroad, commercial presence, and presence of natural persons. Due to the special characteristics of services, interaction between people is often included in trade in services. Because of the special characteristics of trade in services, both active and passive spillovers are possible. One can expect the bene ts from technological di¤usion occurring through trade in services to be signi cant. This is due to the fact that with person-to-person contacts it can be very di¢cult for the inventor to prevent knowledge spillovers from occurring (Keller 2004). The possibility for countries to bene t from spillovers occurring through service ows has been increasing during the 1990 s with increasing trade in services. The annual export growth of commercial service was over 6 % per year during 1990-2000 (WTO 2000).
In section 2 we represent the theoretical framework of our paper. After introducing the models used in our regressions, we represent results in section 3. The following section 4 is for conclusions. In appendix 1 we represent data construction. Appendix 2 represents our data sources and appendix 3 the chosen countries according to their income status.