Costs of production, intra- and interindustry R&D spillovers:

This paper presents estimates of the effects of intra- and interindustry R&D investment spillovers on the costs and structure of production. The social rates of return to R&D investment and their deviation from the private rate are also estimated. This is the first time that the consequences of R&D spillovers are evaluated for Canadian industries. Intra- and interindustry spillovers decrease unit costs of production. Moreover, interindustry effects are substantially more elastic. Generally a firm's own R&D capital is a substitute for R&D capital obtained freely via spillovers. However, for firms operating in industries with relatively larger R&D propensities, their own R&D capital and the intra-industry spillover are complementary. In all industries the social rate of return greatly exceeds the private return, and the contribution of the interindustry spillover to the social return is virtually the same and small for all industries. Thus differentials between social and private returns and between social returns across industries depend on the extent of the intra-industry spillovers.