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Is embodied technology the result of upstream R&D? industry-level evidence

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Daniel J. Wilson

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Abstract

In this paper, I develop an industry-level index of capital-embodied R&D by capturing the extent of research and development directed at the capital goods in which a given industry invests. Compiling and adjusting data from the National Science Foundation and Commerce Department, I construct industry-level, time-series measures of this index and investigate its properties. The data allow me to identify the R&D directed at the development of specific types of capital rather than incorrectly assuming industry R&D spending is equivalent to R&D directed at the industry's product, an assumption typically made in the R&D literature. It is first shown that R&D directed at a type of capital is a good measure of its technological change. The constructed index of an industry's capital-embodied R&D is then compared to rates of embodied technological change estimated using plant-level manufacturing data. The index of embodied R&D is found to be positively and significantly related to the estimated rates of embodied technological change. Likewise, embodied R&D is shown to have a positive and significant effect on conventionally-measured total factor productivity growth (i.e. the Solow Residual). This has two implications. First, the capital component of the Solow Residual is generally mismeasured as it does not adequately capture technological change. Second, the constructed index of embodied R&D is proportional to true embodied technological change. Rates of embodied technological change are thus imputed for non-manufacturing industries using the estimated relationship between embodied R&D and embodied technological change found in the manufacturing data.

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Paper provided by Federal Reserve Bank of San Francisco in its series Working Papers in Applied Economic Theory with number 2001-17.

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Date of creation: 2001
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Handle: RePEc:fip:fedfap:2001-17

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Keywords: Technology ; Research and development;

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This paper has been announced in the following NEP Reports: References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    Other versions:
  2. Plutarchos Sakellaris & Daniel J. Wilson, 2001. "Quantifying embodied technological change," Working Papers in Applied Economic Theory 2001-16, Federal Reserve Bank of San Francisco. [Downloadable!]
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  3. Bartelsman, Eric J & Caballero, Ricardo J & Lyons, Richard K, 1994. "Customer- and Supplier-Driven Externalities," American Economic Review, American Economic Association, vol. 84(4), pages 1075-84, September. [Downloadable!] (restricted)
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  6. Hulten, Charles R, 1992. "Growth Accounting When Technical Change Is Embodied in Capital," American Economic Review, American Economic Association, vol. 82(4), pages 964-80, September. [Downloadable!] (restricted)
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  11. McHugh, Richard & Lane, Julia, 1983. "The Embodiment Hypothesis: An Interregional Test," The Review of Economics and Statistics, MIT Press, vol. 65(2), pages 323-27, May. [Downloadable!] (restricted)
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  16. Richard C. Levin & Alvin K. Klevorick & Richard R. Nelson & Sidney G. Winter, 1987. "Appropriating the Returns from Industrial Research and Development," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 18(1987-3), pages 783-832. [Downloadable!]
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  19. Kortum, Samuel, 1993. "Equilibrium R&D and the Patent-R&D Ratio: U.S. Evidence," American Economic Review, American Economic Association, vol. 83(2), pages 450-57, May.
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  23. Manuel Trajtenberg, 1990. "A Penny for Your Quotes: Patent Citations and the Value of Innovations," RAND Journal of Economics, The RAND Corporation, vol. 21(1), pages 172-187, Spring. [Downloadable!] (restricted)
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Daniel Wilson, 2003. "Embodying Embodiment in a Structural, Macroeconomic Input-Output Model," Economic Systems Research, Taylor and Francis Journals, vol. 15(3), pages 371-398, September. [Downloadable!] (restricted)
    Other versions:
  2. Roberto M Samaniego, 2005. "Investment-Specific Technical Change and the Production of Ideas," Computing in Economics and Finance 2005 291, Society for Computational Economics. [Downloadable!]
  3. Jason G. Cummins & Giovanni L. Violante, 2002. "Investment-Specific Technical Change in the US (1947-2000): Measurement and Macroeconomic Consequences," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 5(2), pages 243-284, April. [Downloadable!] (restricted)
    Other versions:
  4. Francesco Caselli & Daniel Wilson, 2003. "Importing technology," Working Papers in Applied Economic Theory 2003-04, Federal Reserve Bank of San Francisco. [Downloadable!]
    Other versions:
  5. Daniel Wilson, 2004. "IT and Beyond: The Contribution of Heterogenous Capital to Productivity," Working Papers 04-20, Center for Economic Studies, U.S. Census Bureau. [Downloadable!]
    Other versions:
  6. repec:bep:maccon:v:7:y:2007:i:1:p:1373-1373 is not listed on IDEAS
  7. Robert L. Basmann & Michael McAleer & Daniel Slottje, 2007. "Patent Activity and Technical Change," DEA Working Papers 27, Universitat de les Illes Balears, Departament d'Economía Aplicada. [Downloadable!]
    Other versions:
  8. L. Rachel Ngai & Roberto M. Samaniego, 2006. "An R&D-Based Model of Multi-Sector Growth," CEP Discussion Papers dp0762, Centre for Economic Performance, LSE. [Downloadable!]
  9. Richard Dion & Robert Fay, 2008. "Understanding Productivity: A Review of Recent Technical Research," Discussion Papers 08-3, Bank of Canada. [Downloadable!]
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