R&D, Investment, and Industry Dynamics
AbstractWe present a model of industry evolution where the dynamics are driven by a process of endogenous innovations followed by subsequent embodiments in physical capital. Traditionally, the only distinction between R&D and physical investment was one of labeling: the first process accumulates an intangible stock, knowledge, while the second accumulates physical capital. Both stocks affect output in a symmetric fashion. We argue that the story is not that simple, and that there is more to it than differences in the object of accumulation. Our model stresses the causal relationship between past R&D expenditures and current investments in machinery and equipment. This causality pattern, which is supported by the data, also explains the observed higher volatility of physical investment relative to that of R&D expenditures. Copyright 1996 The Massachusetts Institute of Technology.
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Bibliographic InfoArticle provided by Wiley Blackwell in its journal Journal of Economics & Management Strategy.
Volume (Year): 5 (1996)
Issue (Month): 2 (06)
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Other versions of this item:
- Saul Lach & Rafael Rob, 1995. "R&D, investment and industry dynamics," Finance and Economics Discussion Series 95-47, Board of Governors of the Federal Reserve System (U.S.).
- Saul Lach & Rafael Rob, 1992. "R&D, Investment and Industry Dynamics," NBER Working Papers 4060, National Bureau of Economic Research, Inc.
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