International R&D Spillovers in Transition Countries: The Impact of Trade and Foreign Direct Investment

While the economic theory predicts that developing countries will gain the most from
technology spillovers, there have been only a few analyses looking at this question
empirically. The present study focuses on a panel of 27 transition and 20 Western
European countries between 1990 and 2006 and uses the latest developments in panel
unit root and cointegration testing to disentangle the effects of international spillovers via
trade and FDI. My findings show that imports remain the main channel of diffusion for
both sets of countries, while FDI, although significant econometrically, has less
quantitative impact on domestic productivity. The domestic R&D capital stock plays an
active role in Western Europe while in the Eastern part is much less important. Human
capital has an overall robust positive influence on TFP. The results confirm that transition
countries seem to gain more in terms of productivity from the international diffusion
process than their Western counterparts.