Absorptive Capacity and Frontier Technology: Evidence from OECD Manufacturing Industries Richard Kneller † and Philip Andrew Stevens ‡ Abstract This paper investigates whether differences in absorptive capacity help to explain cross-country differences in the level of productivity. We utilise stochastic frontier analysis to investigate two potential sources of this inefficiency: differences in human capital and R&D for nine industries in twelve OECD countries over the period 1973-92. We find that inefficiency in production does indeed exist and it depends upon the level of human capital of the country’s workforce. Evidence that the amount of R&D an industry undertakes is also important is less robust. October 2002 Discussion Paper Number 202 † Leverhulme Centre for Research on Globalisation and Economic Policy, School of Economics, University of Nottingham, Nottingham, NG7 2RD. ‡ National Institute of Economic and Social Research 2, Dean Trench Street, Smith Square, London, SW1 3HE.