Many writers have claimed that research and development (R&D) has two 'faces'. In addition to the conventional role of stimulating innovation, R&D enhances technology transfer by improving the ability of firms to learn about advances in the leading edge ('absorptive capacity'). In this paper we explore this idea empirically using a panel of industries across twelve OECD countries. We find evidence that R&D is statistically and economically important in this catch up process as well as stimulating innovation directly. Human capital also plays an major role in productivity growth, but we only find a small impact of trade. Because R&D matters so much for growth through catchup, social rates of return have been underestimated by studies that focus only on the U.S.JEL CLASSIFICATION: O0, O3, O4

Support for R&D subsidies relies on empirical evidence that R&D "spills over" between firms. But firm performance is affected by two countervailing R&D spillovers: positive effects from technology spillovers and negative business stealing effects from R&D by product market rivals. We develop a general framework showing that technology and product market spillovers have testable implications for a range of performance indicators, and then exploit these using distinct measures of a firm's position in technology space and product market space. Using panel data on U.S. firms between 1980 and 2001 we show that both technology and product market spillovers operate, but technology spillovers quantitatively dominate. The spillover effects are also present when we analyze three high tech sectors in finer detail. Using the model we evaluate the net spillovers from three alternative R&D subsidy policies.

This paper examines the empirical relationship between technological innovations, market share and stock market value. New developments in the estimation of dynamic count data models are used to control for unobserved firm specific heterogeneity. We find a robust and positive effect of market share on observable headcounts of innovations and patents although increased product market competition in the industry tends to stimulate innovative activity. Furthermore, the impact of innovation on market value is larger for firms with higher market shares. We argue that our results are consistent with models where high market share firms have incentives to pre‐emptively innovate.