The Relative Effects of Domestic Innovation and Asian Innovation Spillovers on Total Factor Productivity of South Africa's Manufacturing Industries

We estimate the extent to which research and development (R&D) stock embodied in imports from China, South Korea, Singapore and Taiwan correlates with total factor productivity (TFP) growth of South Africa's 22 3- digit manufacturing industries between 2002 and 2014. Using the system GMM technique, we find a positive and significant impact of Asian R&D spillovers particularly from China, Korea and Singapore on TFP growth which is in the 0.02 - 0.08% range reported in previous studies. We find this effect to increase with institutional quality and human capital accumulation. Despite the positive effect of Asian R&D spillovers however, we find domestic R&D stock to have a relatively larger effect on TFP implying that, at best, Asian innovation needs to be considered as a complement rather than a substitute for domestic R&D.