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Studies which are based on Coe and Helpman (1995) and use weighted foreignR&D variables to estimate channel-specific R&D spillovers disregard theinteraction between international R&D spillovers and other unobserved commonspillovers and shocks. Using a panel of 50 economies from 1970-2011, we findthat disregarding this interaction leads to inconsistent estimates wheneverknowledge spillovers and other unobserved effects are correlated with foreignand domestic R&D. When this interaction is modeled, estimates are consistent;however, they confound foreign and domestic R&D effects with unobservedeffects. Thus, the coefficient of a weighted foreign R&D variable cannotcapture genuine channel-specific R&D spillovers.

International R&D Spillovers and other Unobserved Common Spillovers and Shocks