Originally published 9 April 2003

New research by University of Warwick researcher Dolores Añon confirms the importance of privately funded research and development (R&D) for improving productivity across UK manufacturing industries. But there is no gain from foreign R&D investment. The research will be presented at the Royal Economic Society’s Annual Conference at the University of Warwick this week.

Up till now one of the key benefits economists have claimed for R&D investment is ‘spill over’, - ie that industries will benefit from both their own R&D efforts as well as the research results of other national and overseas industries. Dolores Añon’s research challenges a key part of that belief.

Her research uses data for eight UK manufacturing sectors over the period 1970-97. The results indicate that, in line with previous studies, there is a positive and significant link between the privately funded R&D activities and productivity in UK manufacturing industries. Specifically she found that a 1% increase an industry sectors R&D spend by the companies themselves increased that industry’s gross output by 0.33%. She also found robust evidence of positive and significant domestic R&D spillovers from R&D investment from other UK companies.

However, the results fail to detect any improvements in domestic productivity of UK manufacturing sectors arising from foreign R&D investment. This implies that any benefits to productivity from R&D to UK manufacturing industries come primarily from national private R&D investment – this should serve as a warning to policy makers against underestimating the importance of domestic technological efforts and overestimating the potential contribution of international spillovers. UK companies should not assume that they will be able to benefit either in the short term or the long term from the additional knowledge produced from overseas R&D investment and should instead rely more on their own R&D investment. The other policy impact is that Government should be less inclined to produce incentives for additional private R&D investment as the social rate of return to R&D spend is less than may have been previously thought (if foreign R&D spillovers were considered to have a positive impact).

Note for Editors: ‘Total Factor Productivity and R&D Spillovers’ by Dolores Añon will be presented at the Royal Economic Society’s 2003 Annual Conference at the University of Warwick on Wednesday 9 April. Dolores Añon is a postgraduate researcher in the Warwick Business School at the University of Warwick.

For further details please contact:

Dolores Añon, Warwick Business School, University of Warwick Tel: 024 7657 4169 D.Anon-Higon@warwick.ac.uk

Peter Dunn, Press Officer, University of Warwick Tel: 024 7652 3708 email: p.j.dunn@warwick.ac.uk

or Romesh Vaitilingam RES on 07768 661095