Abstract
This study investigates the indirect effects of R&D on regional productivity by estimating an augmented Cobb-Douglas production function that incorporates both own R&D capital and R&D spillovers. To capture the spillover effects, both weighted and unweighted R&D spillover measures were constructed. Using both static and dynamic regression models, the findings reveal no significant evidence of positive spillover effects. Instead, the results suggest a ‘beggar-thy-neighbour’ effect, where higher R&D investments in other regions negatively impact local productivity. This implies that rather than fostering regional innovation diffusion, external R&D efforts may contribute to a business-stealing or market-stealing effect, intensifying competition and limiting potential productivity gains. These findings have important implications for regional innovation policies, suggesting that localized R&D incentives may be necessary to counterbalance competitive externalities and promote balanced economic growth