This paper studies the international R&D spillovers to Korean manufacturing by estimation elasticities to average cost of US and Japan R&D investment. Factor demand elasticities of Korean manufacturing for categories of food and beverage, textile, paper & printing, wood and wood products, petrochemicals, rubber, plastic products, non-ferrous metals, steel manufacturing, fabrication of steel, and others are also calculated. We find that in general a 1% increase of Korea's R&D investment decreases 0.9%, 1.2% and 0.2% of average costs of Korean total manufacturing, light and heavy industries, respectively.

For the period under study, we find that US R&D investment has higher spillover effect on Korean manufacturing than Japan R&D investment through decreased average costs, and this is  particularly pronounced in the manufacturing and heavy industries. Specifically, a 1% increase in Japan's R&D investment decreases average costs of Korean total manufacturing, light and heavy industries by 0.23%, 0.82% and 0.4%, respectively, while US R&D investment of 1% decreases for the same sectors respectively, 0.83%, 0.1%, and 0.8% of average costs.