Research and Development Spillovers in Central and Eastern Europe

The present study considers the implications of different stages of economic integration for endogenous growth models with horizontal differentiation of the intermediate goods. It investigates the decline of the domestic R&D (research and development) sector for countries with lower initial stock of R&D due to partial integration in the form of free trade. The problem is investigated with empirical analysis for panel data for 12 EU accession countries in the period of 1990–2001. The specification relating the growth of total factor productivity, the domestic and the available foreign stock of R&D is estimated with first-differences, ordinary least-squares, dynamic panel data, and GMM methods. The time series are highly persistent and the applied procedures have different advantages according to the assumptions and the purpose of the analysis. All methods establish the comparable result that the foreign R&D stock interacted with the import share is a substantial and significant factor for the growth of total factor productivity. The role of the domestic R&D is insignificant for the growth of total factor productivity, verifying the decline of the sector with free trade.