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We examine the “technology sourcing” hypothesis that foreign research labs located in the U.S. tap into U.S. R&amp;D spillovers and improve home country productivity. We show that U.K. firms that established a high proportion of inventors based in the U.S. by 1990 benefited disproportionately from the growth of U.S. R&amp;D stock over the next ten years. We estimate that U.S. R&amp;D during the 1990s was associated with 5 percent higher Total Factor Productivity for U.K. manufacturing firms in 2000 (about $13 billion), with the majority of benefits accruing to firms with an innovative presence in the U.S.

How Special Is the Special Relationship? Using the Impact of U.S. R&D Spillovers on U.K. Firms as a Test of Technology Sourcing