R&D and Productivity Growth in Japanese Manufacturing Firms

The relationship between the R&D and the productivity improvement in Japanese manufacturing firms is examined. Using more accurate and the more recent data on the individual firm's R&D activity rather than the data used in the previous research, we estimated a Cobb-Douglas production function, including R&D stock, for more than 3,000 Japanese firms for the period between 1995 and 1998. A positive and significant role is found on R&D expenditure and productivity, and the roles are different by the firms' sizes and characteristics of technology, although the rates of return on R&D stock are lower than those in the previous research. Our results indicate that the inter-firm differences are more important in explaining the differences in productivity growth than are the inter-industry differences. We also found that the effects of R&D on productivity improvement are larger for the large sized and high-tech firms than they are for the smaller sized and the low-tech firms.