Income Convergence and R&D Intensity in OECD Manufacturing Industries: A Panel Study

This paper evaluates the impact of R&D investment on income convergence for a cross section of manufacturing industries in 12 OECD countries over the time period 1987-1999. We apply dynamic panel estimation techniques to obtain a speed of convergence which, when conditioned to R&D expenditure, is significantly greater than the conventional 2%. In particular, the inclusion of the R&D variable results to a speed of convergence of 7-9% per year, suggesting that convergence is faster between equally technologically advanced industries. A further implication from our results is that differences in the industry mix can be important in explaining the speed of income convergence between countries.