Productivity, trade and the R&D content of intermediate inputs

This paper explores a novel way to evaluate the extent to which R&D knowledge embodied in intermediate inputs correlates with productivity at the industry level. We propose the concept of R&D content of intermediates, which represents the R&D stock embodied in intermediate goods used in production. This concept parallels that of factor content of trade, and it requires the use of a global input-output matrix that speci.es all industries and countries involved in the intermediate purchases. Using a sample of 32 countries and 13 manufacturing industries we compute the elasticity of industry-level TFP with respect to the R&D content of intermediates. We find that among high-R&D industries, the R&D embodied in foreign inputs purchased from the own industry is significantly associated with industry-level TFP. In contrast, intermediate input trade does not appear to be a significant channel of R&D diffusion among low-R&D industries.