The US innovation boom since 1990 has had major benefits for the UK economy. According to new research by CEP's director John Van Reenen and colleagues, without the growth in US spending on research and development (R&D) in the 1990s, UK productivity would have been about 5% lower in 2000.

Griffith, Rachel

Harrison, Rupert

Van Reenen, John

English

Research Papers in Economics

CentrePiece Spring 2005
11
Boffins in the USA:
the boost to UK productivity
The US innovation boom since 1990
has had major benefits for the UK economy. According to
new research by CEP’s director John Van Reenen and
colleagues, without the growth in US spending on
research and development (R&D) in the 1990s, UK
productivity would have been about 5% lower in 2000. 
R&D is important for innovation and productivity, not just
for pushing forward the technological frontier in itself but
also making it possible for firms to learn about and
absorb innovations from elsewhere, including the output
of basic science. Foreign direct investment can play a
significant role in this ‘technology transfer’, and so can
‘outsourcing’ R&D to overseas locations.
This research indicates that the ‘special relationship’
between the UK and the United States exists not only in
politics but also in economics. UK firms that have placed
a large number of their researchers in the United States
have been able to tap into the new ideas of US scientists.
Bringing these ideas from places like Silicon Valley back
to the UK helps boost our productivity. 
The study analyses the accounts of large R&D performing
firms (188 in the UK and 570 in the United States)
between 1990 and 2000 to test the ‘technology
sourcing’ hypothesis. This is the idea that foreign research
labs located on US soil tap into US R&D ‘spillovers’
and improve home country
productivity. The results show
that UK firms that had
established a high proportion of US-based inventors by
1990 benefited disproportionately from the growth of
the US R&D stock over the next ten years. What’s more,
the benefits of such technology sourcing were larger in
industries where the productivity gap with the United
States was greater.
The report also looks at US firms investing in R&D labs in
the UK. Unfortunately for the Americans, the benefits of
UK research have not been so large. Just as with
particular industries, it turns out that technology sourcing
is more important for countries that have ‘most to learn’.
So when it comes to the special relationship, the UK
benefits much more from US R&D than vice versa. 
A key question for both research and policy is what is the
ideal place for UK and European companies to locate
their R&D – near universities, near their production
facilities, at home, overseas? Many European policy-
makers fearing ‘delocalisation’ are trying to get firms to
relocate their R&D labs back to Europe in order to reach
the ‘Lisbon agenda’ target of getting R&D up to 3% of
GDP. But the evidence on the productivity benefits
of US-based R&D suggests that they could be
shooting themselves in the foot.
This article summarises ‘How Special is the
Special Relationship? Using the Impact of US
R&D Spillovers on UK Firms as a 
Test of Technology Sourcing’ by Rachel
Griffith, Rupert Harrison and John Van
Reenen, CEP Discussion Paper No. 659
(http://cep.lse.ac.uk/pubs/download/
dp0659.pdf). Rachel Griffith and Rupert
Harrison are at the Institute for Fiscal
Studies and University College London.
John Van Reenen is director of CEP .
The productivity benefits of US-based
R&D suggests that policy-makers
should not subsidise firms into
relocating their labs back to Europe
Bringing ideas 
back from places 
like Silicon Valley 
helps to boost 
UK productivity
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In brief: boffins in the USA: the boost to UK productivity.

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