Our paper decomposes knowledge-di®using trade flows and estimates their
impacts separately. Overall, trade generates positive knowledge spillovers,
but the effects of intra-industry trade are ambiguous. With regard to sectoral
im- port penetration, we find that potential positive spillovers are dominated
by negative competition effects. This, however, masks the signifficant
positive spillover effects of intra-industry trade that corresponds to
international out- sourcing.