This paper examines how R&D and innovation affected economic performance in different South American countries from 1990 to 2010. We consider a Schumpeterian growth model (Ertur and Koch, 2011) to assess the extent to which one countrys productivity affects the productivity of other countries and test the effectiveness of R&D in terms of direct and indirect impact on the economy. Different specifications of the spatial weight matrix are considered in order to investigate the different mechanisms of technological diffusion. The results suggest that public sector funded R&D investments and, to a lesser extent, private sector funded R&D, have a positive impact on these countries productivity. We also observe that there are significant international spillovers from R&D activities. The ability to disseminate technologies and to take advantage of these international spillovers, however, differs from one country to another.