International R&D spillovers: A comment

Coe and Helpman presented evidence consistent with the hypothesis that technology spills over across countries through the channel of trade flows, and provided estimates of the magnitude of these spillovers. We re-examine two features of their econometric model. First, we argue that the weighting scheme they used to compute foreign R&D capital stocks is subject to an `aggregation bias'. We suggest an alternative weighting scheme that is theoretically much less biased and that yields somewhat better empirical results. Second, we correct an `indexation bias' and generalise their empirical framework by analysing how the output elasticity of foreign R&D depends on a country's openness to trade. The empirical results confirm that the more open to trade a country is, the more likely it is to benefit from foreign R&D.