Knowledge spillovers through FDI and trade: the moderating role of quality-adjusted human capital

The paper extends the findings of the Coe and Helpman (Eur Econ Rev 39(5):859-887, 1995) model of R&D spillovers by considering foreign direct investment (FDI) as a channel for knowledge spillovers in addition to imports. Deeper insights on the issue are provided by examining the inter-relationship between knowledge spillovers from imports and inward FDI. Furthermore, human capital is added to the discussion as one of the appropriability factors for knowledge spillovers, with special focus on its quality-content, using journal publications and patent applications. Applying cointegration estimation method on 20 European countries from 1995 to 2010, the direct effects of FDI-related as well as import-related spillovers on domestic productivity are confirmed. Furthermore, a strong complementary relationship is found between knowledge spillovers through the channels of imports and inward FDI. When considering quality-adjusted human capital, countries with better human capital are found to benefit not only from direct productivity effects, but also from absorption and transmission of international knowledge spillovers through imports and inward FDI. Finally, technological distance with the frontier does not appear to play a role in the absorption of import and FDI related knowledge spillovers.