Knowledge that Transforms

A number of studies have suggested a quantitatively important relationship between public-sector capital accumulation and private sector productivity, with the most compelling evidence derived from analyses of state-level data. Estimates herein of production functions that use standard techniques to control for unobserved, state-specific characteristics, however, reveal essentially no role for public-sector capital in affecting private sector productivity. Only estimates of state production functions that do not include such controls find substantial productivity impacts. This result reconciles existing econometric estimates with the findings of Hulten and Schwab based on growth accounting techniques, as such techniques effectively control for state-specific effects. Region-level estimates are essentially identical to those from state data, suggesting no quantitatively important spillover effects across states.

The findings in this paper provide some insight into how small firms are able to innovate. Using a production function approach to relate knowledge generating inputs to innovative output, the empirical results suggest that small firms are the recipients of R&D spillovers from knowledge generated in the R&D centers of their larger counterparts and in universities. Such R&D spillovers are apparently more decisive in promoting the innovative activity of small firms than of large corporations.

Immigrants' ties to their home countries can play a key role in fostering bilateral trade linkages. Immigrant ties include knowledge of home-country markets, language, preferences, and business contacts that have the potential to decrease trading transaction costs. Empirical results for the United States suggest that immigrant links have historically been important in increasing bilateral trade flows with immigrants' home countries.

Charles P. Himmelberg, Bruce C. Petersen, R & D and Internal Finance: A Panel Study of Small Firms in High-Tech Industries, The Review of Economics and Statistics, Vol. 76, No. 1 (Feb., 1994), pp. 38-51