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Measuring the social return to R&D

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  • Charles I. Jones
  • John C. Williams

Abstract

A large, empirical literature reports estimates of the rate of return to R&D ranging from 30 percent to over 100 percent, supporting the notion that there is too little private investment in research. This conclusion is challenged by the new growth theory. We derive analytically the relationship between the social rate of return to R&D and the coefficient estimates of the empirical literature. We show that these estimates represent a lower bound on the true social rate of return. Using a conservative estimate of the rate of return to R&D of about 30 percent, optimal R&D investment is at least four times larger than actual investment.

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Bibliographic Info

Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series Finance and Economics Discussion Series with number 1997-12.

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Date of creation: 1997
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Handle: RePEc:fip:fedgfe:1997-12

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Related research

Keywords: Research and development;

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References

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  1. R. Mehra & E. Prescott, 2010. "The equity premium: a puzzle," Levine's Working Paper Archive 1401, David K. Levine.
  2. Aghion, P. & Howitt, P., 1989. "A Model Of Growth Through Creative Destruction," Working papers 527, Massachusetts Institute of Technology (MIT), Department of Economics.
  3. Kim B. Clark & Zvi Griliches, 1984. "Productivity Growth and R&D at the Business Level: Results from the PIMS Data Base," NBER Chapters, in: R & D, Patents, and Productivity, pages 393-416 National Bureau of Economic Research, Inc.
  4. Scherer, F M, 1982. "Inter-Industry Technology Flows and Productivity Growth," The Review of Economics and Statistics, MIT Press, vol. 64(4), pages 627-34, November.
  5. Griliches, Zvi, 1992. " The Search for R&D Spillovers," Scandinavian Journal of Economics, Wiley Blackwell, vol. 94(0), pages S29-47, Supplemen.
  6. Jeffrey I. Bernstein & M. Ishaq Nadiri, 1986. "Research and Development and Intraindustry Spillovers: An Empirical Application of Dynamic Duality," NBER Working Papers 2002, National Bureau of Economic Research, Inc.
  7. Paul Romer, 1989. "Endogenous Technological Change," NBER Working Papers 3210, National Bureau of Economic Research, Inc.
  8. Sveikauskas, Leo, 1981. "Technological Inputs and Multifactor Productivity Growth," The Review of Economics and Statistics, MIT Press, vol. 63(2), pages 275-82, May.
  9. Jaffe, Adam B, 1986. "Technological Opportunity and Spillovers of R&D: Evidence from Firms' Patents, Profits, and Market Value," American Economic Review, American Economic Association, vol. 76(5), pages 984-1001, December.
  10. Bronwyn H. Hall & Jacques Mairesse, 1992. "Exploring the Relationship Between R&D and Productivity in French Manufacturing Firms," NBER Working Papers 3956, National Bureau of Economic Research, Inc.
  11. M. Ishaq Nadiri, 1993. "Innovations and Technological Spillovers," NBER Working Papers 4423, National Bureau of Economic Research, Inc.
  12. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, December.
  13. Stokey, Nancy L, 1995. "R&D and Economic Growth," Review of Economic Studies, Wiley Blackwell, vol. 62(3), pages 469-89, July.
  14. Nestor Terleckyj, 1980. "Direct and Indirect Effects of Industrial Research and Development on the Productivity Growth of Industries," NBER Chapters, in: New Developments in Productivity Measurement, pages 357-386 National Bureau of Economic Research, Inc.
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