R-AND-D SPILLOVERS AND TECHNOLOGY-TRANSFER AMONG AND WITHIN VERTICAL KEIRETSU GROUPS - EVIDENCE FROM THE JAPANESE ELECTRICAL MACHINERY INDUSTRY

Using a dynamic factor demand model with R&D externalities, we analyze the effects of technological diffusion among and within vertical keiretsu groups in the Japanese electrical machinery industry. We find that technology transfer from a core firm to its subcontracting firms is substantial. We also find positive R&D spillovers, which stem from the R&D activities of other keiretsu groups. Particularly remarkable are the spillovers between core firms of competing keiretsu groups.