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Accumulation of R&D Capital and Dynamic Firm Performance: A Not-So-Fixed Effect Model

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  • Tor Jakob Klette
  • Frode Johansen

Abstract

Considering the observed patterns of R&D investment, we argue that a model which allows for a positive feedback from already acquired knowledge to the productiveness of current research, fits the empirical evidence better than the standard model that treats knowledge accumulation symmetrically with the accumulation of physical capital. We present an econometric framework consistent with a positive feedback in the accumulation of R&D capital. The empirical model is econometrically simple and less data-demanding than the standard framework. Our estimates show a significant positive effect of R&D on prrformance and a positive feedback effect from the stock of knowledge capital. We calculate the depreciation rate and the rate of return to knowledge capital for our alternative framework, and compare our estimated rates of return to results obtained within the standard framework.

Suggested Citation

  • Tor Jakob Klette & Frode Johansen, 1998. "Accumulation of R&D Capital and Dynamic Firm Performance: A Not-So-Fixed Effect Model," Annals of Economics and Statistics, GENES, issue 49-50, pages 389-419.
    • Handle: RePEc:adr:anecst:y:1998:i:49-50:p:389-419
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    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General

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