Knowledge Spillover Effects and Methods of their Measurement

Abstract

Knowledge spillovers as externality gain by countries from other countries’ R&D investment come at no cost to the beneficiary country. This makes international knowledge spillovers a rich source of input in the knowledge production function of countries. Innovation policies of countries have been centered around knowledge spillovers, their effectiveness and exploitation. Despite the relevance of knowledge spillovers to innovation and economic policies for growth, studies on their effect and measurement remain relatively limited. This study contributes to the knowledge spillover and innovation literature by assessing the effect of knowledge spillovers and their measurements. Using data from selected countries in Europe in a panel study, various measures of knowledge spillovers were investigated for their reliability and validity. The study also assessed the complementarity and the joint effect of knowledge spillover and countries’ own R&D for innovation purposes as well as the role of absorptive capacity in the complementarity between international knowledge spillovers and countries’ own R&D. The study shows that knowledge spillover measures based on geographic proximity and technological proximity show some marked differences in their outcomes. The different technology proximity measures of knowledge spillovers investigated are found to be valid, but their reliability differ depending on the type of reliability estimator used. The findings of the study also reveals that the R&D intensity and relational capacity of countries are critical for the complementarity and joint use of international knowledge spillovers and countries’ own R&D for innovation.