Identifying technology spillovers and product market rivalry∗

The impact of R&D on growth through spillovers has been a major topic of economic research over the last thirty years. A central problem in the literature is that firm performance is affected by two countervailing “spillovers”: a positive effect from technological knowledge spillovers and negative business stealing effects from product market rivals. We develop a general framework incorporating these two types of spillovers and implement this model using measures of a firm’s position in technology space and product market space. Using panel data on U.S. firms we show that technology spillovers quantitatively dominate, so that the gross social returns to R&D are nearly twice as high as the private returns. This result is robust to using tax incentives as instrumental variables for R&D. We also find that smaller firms generate lower social returns to R&D because they operate more in technological niches. Finally, we analyze three high-tech sectors in detail, and find that in one of them pharmaceuticals business stealing effects are sufficiently strong to make the private and social returns to R&D roughly equal. JEL No. O31, O32, O33, F23