Are International R&D Spillovers Costly for the US?

Coe and Helpman (1995) and others report positive and equivalent R&D spillovers across G7 countries. We argue that their homogeneity constraint on spillovers across G7 countries is inappropriate, and show that it is rejected by the data. Extending the data set and applying new empirical approaches, we find: (i) R&D spillovers are extremely heterogeneous across G7 countries; (ii) panel estimates do not correspond to country specific estimates and conceal important cross-country differences in knowledge diffusion; and (iii) the US is a net loser in terms of international R&D spillovers. Our interpretation is that when competitors ‘catch-up’ technologically, they challenge US market shares and investments worldwide and this has implications for US productivity.