Returning to Krugman’s simplified model of knowledge spillovers, it becomes apparent
that R&D subsidies to domestic firms are just as likely to benefit foreign rivals if we assume that
most of the knowledge generated is the kind that becomes available internationally. In this age
of telecommunications and low transportation costs, with multinational firms operating across
the globe, the economic boundaries of the state have in many ways withered away. This
changing economic landscape makes it difficult to continue to justify the assumption that the