The impact of domestic and foreign R&D on TFP in developing countries

There are few studies on the impact of domestic R&D on TFP in developing countries and even less on the impact of both domestic and foreign R&D on TFP in developing countries. Only one of these studies—a single-country study—also tests semi-endogenous and Schumpeterian R&D growth models against each other. All these studies focus on a relatively small number of developing countries, and none examines the extent to which there are differences in the effects of domestic R&D and international R&D spillovers on TFP between middle- and low-income countries. Using a large panel of countries, this study (i) tests the predictions of Schumpeterian theory against the predictions of semi-endogenous theory regarding the R&D-TFP relationship for developing economies, (ii) examines and compares the effects of domestic R&D and international R&D spillovers on TFP in developing countries, and (iii) investigates differences in the effects of domestic R&D and international R&D spillovers on TFP between middle- and low-income countries. It is found that an increase in the level (growth rate) of domestic R&D expenditures has a positive effect on the level (growth rate) of TFP, as semi-endogenous growth theory predicts, but this effect is greater in middle-income than in low-income countries. It is also found that domestic R&D has a much greater effect on TFP in developing countries than international R&D spillovers.