Vertical keiretsu and knowledge spillovers in Japanese manufacturing: An empirical assessment

Observers of the Japanese economy know that vertical keiretsu groups tend t o play an important role in Japan's most internationally competitive and te chnologically progressive industries. It has long been hypothesized that ve rtical keiretsu linkages enhance the productivity of member firms by promot ing the flow of technological information across firm boundaries. This pape r uses micro-level data to test this hypothesis. I develop an empirical fra mework which allows me to measure the impact of knowledge spillovers on the innovation of firms. I find strong empirical evidence that vertical keiret su linkages promote knowledge spillovers. J. Japan. Int. Econ., June 2000, 14(2), pp. 73-104. Department of Economics, University of California, Davis , California 95616; and NBER, 1050 Massachusetts Avenue, Cambridge, Massach usetts 02138. (C) 2000 Academic Press Journal of Economic Literature Classi fication Numbers: O3, L1, P1.