Frontier Technology and Absorptive Capacity: Evidence from OECD Manufacturing Industries*

In this paper, we examine the three facets of technology: its creation, dispersion and absorption. We investigate whether differences in absorptive capacity help to explain cross-country differences in the level of productivity. We utilize stochastic frontier analysis to investigate two potential sources of this inefficiency – differences in human capital and R&D – for nine industries in 12 Organization for Economic Co-operation and Development (OECD) countries over the period 1973–91. We find that inefficiency in production does indeed exist and it depends upon the level of human capital of the country’s workforce. Evidence that the amount of R&D an industry undertakes is also important is less robust.

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