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Industrial Research During the 1980s: Did the Rate of Return Fall?

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  • Hall, Bronwyn H.

Abstract

Hall (1993b) found that the market value of corporate R&D; relative to ordinary capital investment fell precipitously during the 1980s. The present paper examines this result more closely and finds that it was due both to an increase in the value of ordinary capital and to a steep decline in the absolute value of R&D; assets. The latter was concentrated in the electrical, scientific instruments, electronics, and computing sectors. Firm-level productivity results show that the contribution of R&D; to sales or output growth was low during the 1970s and the first half of the 1980s but has increased recently, except in the electrical industry and in the large firm part of the computing, machinery, metals, and motor vehicle industries. The overall explanation for these findings is that the very substantial restructuring of the manufacturing sector during the 1980s raised the valuation of ordinary capital (and of R&D; capital in the medium-technology sectors). At the same time entry by smaller firms and new technology coupled with a speed-up in product cycles eroded the profits in the electrical and computing sectors, leading to a substantial decline in the valuation of these profits.

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Bibliographic Info

Paper provided by Department of Economics, Institute for Business and Economic Research, UC Berkeley in its series Department of Economics, Working Paper Series with number qt33d879r9.

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Date of creation: 01 Sep 1993
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Handle: RePEc:cdl:econwp:qt33d879r9

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Keywords: R&D investment; market value; Tobin's Q; manufacturing; Social and Behavioral Sciences;

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Cited by:
  1. Bronwyn Hall, 2004. "Exploring the patent explosion," ESRC Centre for Business Research - Working Papers wp291, ESRC Centre for Business Research.
  2. Møen, Jarle & Thorsen, Helge Sandvig, 2013. "Publication bias in the returns to R&D literature," Discussion Papers 2013/12, Department of Business and Management Science, Norwegian School of Economics.
  3. Bronwyn H. Hall, 2011. "Innovation and Productivity," NBER Working Papers 17178, National Bureau of Economic Research, Inc.
  4. Añón Higón, Dolores & Manjón Antolín, Miguel, 2012. "Multinationality, foreignness and institutional distance in the relation between R&D and productivity," Research Policy, Elsevier, vol. 41(3), pages 592-601.
  5. Jason G. Cummins, 2005. "A New Approach to the Valuation of Intangible Capital," NBER Chapters, in: Measuring Capital in the New Economy, pages 47-72 National Bureau of Economic Research, Inc.
  6. Hall, Bronwyn H. & Mairesse, Jacques & Mohnen, Pierre, 2010. "Measuring the Returns to R&D," MERIT Working Papers 006, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
  7. Jean Olson Lanjouw & Mark Schankerman, 2002. "Research productivity and patent quality: measurement with multiple indicators," LSE Research Online Documents on Economics 3729, London School of Economics and Political Science, LSE Library.
  8. Morck, Randall & Yeung, Bernard, 2004. "Special issues relating to corporate governance and family control," Policy Research Working Paper Series 3406, The World Bank.
  9. Hans Loof & Almas Heshmati, 2006. "On the relationship between innovation and performance: A sensitivity analysis," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 15(4-5), pages 317-344.
  10. Gopinath, Munisamy & Roe, Terry L., 1996. "R&D Spillovers: Evidence from U.S. Food Processing, Farm Machinery and Agriculture," Bulletins 7504, University of Minnesota, Economic Development Center.
  11. Martin Falk, 2012. "Quantile estimates of the impact of R&D intensity on firm performance," Small Business Economics, Springer, vol. 39(1), pages 19-37, July.
  12. Baruch Lev & Suresh Radhakrishnan, 2003. "The Measurement of Firm-Specific Organization Capital," NBER Working Papers 9581, National Bureau of Economic Research, Inc.
  13. García, Francisco & Avella, Lucía & Fernández, Esteban, 2012. "Learning from exporting: The moderating effect of technological capabilities," International Business Review, Elsevier, vol. 21(6), pages 1099-1111.
  14. Salter, Ammon J. & Martin, Ben R., 2001. "The economic benefits of publicly funded basic research: a critical review," Research Policy, Elsevier, vol. 30(3), pages 509-532, March.

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