The International Dynamics of R&D and Innovationin the Short Run and in the Long Run

In this paper we estimate the dynamic relationship between employment in R&D and generationof knowledge as measured by patent applications across OECD countries. In severalrecently developed models, known as ?idea-based? models of growth, the afore mentioned ""ideagenerating""process is the engine of productivity growth. Moreover, in real business cycle modelstechnological shocks are an important source of fluctuations. Our empirical strategy is able totest whether knowledge spillovers are strong enough to generate sustained endogenous growthand to estimate the quantitative impact of international knowledge on technological innovationof a country in the short and in the long run. We find that a country?s stock of knowledge,its R&D resources and the stock of international knowledge move together in the long run.International knowledge has a very significant impact on innovation. As a consequence, a positiveshock to R&D in the US (the largest world innovator) has a significant positive effect onthe innovation of all other countries. Such a shock produces its largest effect on domestic andinternational innovation after five to ten years from its occurrence.