International R&D Spillovers and other Unobserved Common Spillovers and Shocks

Studies which are based on Coe and Helpman (1995) and use weighted foreign R&D variables to estimate channel-specific R&D spillovers disregard the interaction between international R&D spillovers and other unobserved common spillovers and shocks. Using a panel of 50 economies from 1970-2011, we find that disregarding this interaction leads to inconsistent estimates whenever knowledge spillovers and other unobserved effects are correlated with foreign and domestic R&D. When this interaction is modeled, estimates are consistent; however, they confound foreign and domestic R&D effects with unobserved effects. Thus, the coefficient of a weighted foreign R&D variable cannot capture genuine channel-specific R&D spillovers.Comment: 28 page

International R&D spillovers and unobserved common shocks

This paper investigates the effects of the domestic and foreign R&D weighted by bilateral imports on productivity accounting for the heterogeneous impact of unobserved micro and macroeconomic common shocks, which are modeled in a multifactor error structure. Using a panel of 50 economies from 1970-2011, I find that when unobserved common shocks are not regarded, as has been done by the literature in this area, estimates of domestic R&D and foreign R&D might be biased and inconsistent. Once unobserved common shocks are accounted for, by allowing for heterogeneous technology coefficients, significant estimates become more sizable, consistent and not seriously biased in most cases. However, these estimates might be capturing not only returns to domestic R&D and trade-related knowledge spillovers, but also unobserved common spillovers and other effects. This indicates that knowledge spillovers and effects of unknown form cannot be easily separated. Therefore, unobserved common shocks should be considered when estimating returns to domestic R&D and international R&D spilloversEste artículo investiga los efectos de la I+D nacional y extranjera ponderada por las importaciones bilaterales sobre la productividad, teniendo en cuenta el impacto heterogéneo de las perturbaciones comunes micro y macroeconómicas no observadas, que se modelan en una estructura de error multifactorial. El uso de un panel de 50 economías, desde 1.970 a 2.011, hace que cuando no se consideran perturbaciones comunes no observables, como se ha venido haciendo en la literatura de esta área, las estimaciones de I+D nacional y extranjera podrían estar sesgadas y ser inconsistentes. Una vez que los shocks comunes observados se contabilizan, lo que permite llegar a coeficientes tecnológicos heterogéneos, las estimaciones significativas se hacen más elevadas, consistentes y sin un sesgo importante en la mayoría de los casos. Sin embargo, estas estimaciones podrían estar capturando no sólo retornos de la I+D nacional y spillovers de conocimiento relacionados con el comercio de I+D, sino también los efectos secundarios comunes observados y otros efectos. Esto indica que los efectos indirectos y efectos de forma desconocida de conocimiento no pueden separarse fácilmente. Por lo tanto, los shocks comunes observados deben ser considerados al estimar los retornos a la I+D nacional y spillovers de I+D internaciona

Stock markets, banks and economic growth in a context of common shocks and cross-country dependencies

The Appendix of this article is available in the DT 04/17Although a great deal of research has shown how stock markets and banks may relate to economic growth, such studies ignore the role that common shocks play in the finance-growth nexus. Using panels of 54 advanced and emerging economies, and novel common factor frameworks which account for dynamics, reverse causality, observed heterogeneities, and unobserved common shocks which cause error cross-sectional dependencies across countries, we find that stock market development has positive long-term effects on economic growth, while high levels of banking development might be detrimental to overall output. These results also hold for a subsample of advanced countries; however, despite the positive and significant effect that stock market development has on growth for a subsample of emerging countries, the negative effect of bank development is as likely to be significant as insignificant in this case. Moreover, we find that ignoring the strong error cross-sectional dependencies caused by common shocks and/or assuming homogeneous coefficients may yield inconsistent estimatesAunque un elevado número de investigaciones han demostrado que los mercados de valores y los bancos pueden influir en el crecimiento económico, dichos trabajos ignoran el papel que las perturbaciones comunes juegan en el nexo finanzas-crecimiento económico. Usando datos de panel de 54 economías avanzadas y emergentes, además de nuevas estructuras de factores comunes que se toman en consideración para estudiar la dinámica, causalidad inversa, heterogeneidades observadas y perturbaciones comunes no observadas que causan errores de dependencia de corte transversal a través de los países, se encuentra que el desarrollo de los mercados de valores tiene unos efectos positivos de largo plazo sobre el crecimiento económico, mientras que los altos niveles de desarrollo bancario podrían resultar perjudiciales para la producción global. Estos resultados también se mantienen para una submuestra de países avanzados; sin embargo, a pesar del efecto positivo y significativo que el desarrollo del mercado de valores tiene sobre el crecimiento para la submuestr

The Online Supplement to “International R&D Spillovers and other Unobserved Common Spillovers and Shocks”

This document provides a review of the literature on International R&D Spillovers and includes unit root test results, the additional results of static and dynamic models, plots of all series, Stata routines, and tables of the data collection on Gross Expenditure on R&D (GERD) as a percentage of GDP, as found in the study by Ruge-Leiva (2015) "International R&D Spillovers and other Unobserved Common Spillovers and Shocks.