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Does Innovation Encourage Investment in Fixed Capital?

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  • Stephen Nickell
  • D Nicolitsas

Abstract

This paper presents an empirical investigation of the hypothesis that increased R&D expenditure by companies generates a subsequent increase in fixed capital investment both within the same companies and in the companies which they supply. We use an investment framework which involves modelling explicitly the expected present value returns to a marginal increment in the capital stock. This framework is directly suited to our purpose unlike the more standard Euler equation or Q models common in the literature. Our results indicate that R&D expenditure does indeed encourage investment in most industries and that there are no posibitive effects in the other direction. We have thus uncovered a part of the investment process but a more complete understanding awaits an improvement in our knowledge of the determinants of R&D.

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Bibliographic Info

Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp0309.

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Date of creation: Oct 1996
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Handle: RePEc:cep:cepdps:dp0309

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Web page: http://cep.lse.ac.uk/_new/publications/series.asp?prog=CEP

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Cited by:
  1. Claessens, Stijn & Laeven, Luc, 2002. "Financial Development, Property Rights and Growth," CEPR Discussion Papers 3295, C.E.P.R. Discussion Papers.
  2. Courvisanos,Jerry, 2000. "The Dynamics of Innovation and Investment, with application to Australia 1984 - 1998," Research Memorandum 003, Maastricht University, Maastricht Economic Research Institute on Innovation and Technology (MERIT).
  3. Stephen Bond & Dietmar Harhoff & John Van Reenen, 2003. "Investment, R&D and Financial Constraints in Britain and Germany," CEP Discussion Papers dp0595, Centre for Economic Performance, LSE.
  4. Alessandra Del Boca & Marzio Galeotti & Paola Rota, 2003. "Non-convexities in the Adjustment of Different Capital Inputs: A Firm-level Investigation," Working Papers 2003.35, Fondazione Eni Enrico Mattei.

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