Technology sourcing by UK manufacturing firms: an empirical analysis using firm-level patent data∗

This paper examines whether UK firms that locate their R&D activity in the USA benefit more than other UK firms from knowledge spillovers originating from US R&D. Patent data provides a firm-level measure of the location of innovative activity, which enables the identification of knowledge spillovers associated with "technology sourcing". Our identification strategy helps to address various problems usually encountered when measuring knowledge spillovers. Our results also raise interesting questions for policy, for example an R&D tax credit that encourages firms to repatriate foreign R&D activity may be partly counterproductive. ∗Acknowledgement: The authors would like to thank Nick Bloom, Richard Blundell, Steve Bond and Michele Cincera for helpful comments. Financial support for this project was provided by the ESRC Centre for the Microeconomic Analysis of Fiscal Policy at the IFS. The data was developed with funding from the Leverhulme Trust. †Institute for Fiscal Studies and University College London ([email protected], [email protected]) ‡Centre for Economic Performance and London School of Economics