R&D Spillovers and Growth: Specialization Matters

We explore the relationship between openness and growth by taking a closer look at trade-related knowledge spillovers at the industry level. First, we estimate the relation between sectoral R&D expenditures, trade-related spillovers, and growth. Next, we incorporate these R&D linkages in a computable general-equilibrium model for the world economy. We simulate trade liberalization in the model with R&D spillovers and compare the effects on GDP in different regions with a non-R&D-based model simulation. We find that the GDP effects of trade liberalization are magnified considerably by R&D spillovers for some regions—notably Japan and Southeast Asia. In other regions, such as China, the additional GDP effects are modest. These findings can be traced back to changing specialization and import patterns.