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R&D and Non-linear Productivity Growth of Heterogeneous Firms

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The present paper studies the relationship between R&D investment and firm productivity growth by explicitly accounting for non-linearities in the R&D-productivity relationship and inter-sectoral firm heterogeneity. In order to address these issues, we employ a two step estimation approach, and match two firm-level panel data sets for the OECD countries, which allows us to relax both the linearity and homogeneity assumptions of the canonical Griliches (1979) knowledge capital model. Our results suggest that: (i) R&D investment increases firm productivity with an average elasticity of 0.15; (ii) the impact of R&D investment on firm productivity is differential at different levels of R&D intensity – the productivity elasticity ranges from -0.02 for low levels of R&D intensity to 0.33 for high levels of R&D intensity; (iii) the relationship between R&D expenditures and productivity growth is non-linear, and only after a certain critical mass of R&D is reached, the productivity growth is significantly positive; (iv) there are important inter-sectoral differences with respect to R&D investment and firm productivity - high-tech sectors' firms not only invest more in R&D, but also achieve more in terms of productivity gains connected with research activities.

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Bibliographic Info

Paper provided by KOF Swiss Economic Institute, ETH Zurich in its series KOF Working papers with number 12-315.

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Length: 30 pages
Date of creation: Oct 2012
Date of revision:
Handle: RePEc:kof:wpskof:12-315

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Keywords: R&D investment; firm productivity; generalised propensity score;

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  1. Zvi Griliches & Jacques Mairesse, 1982. "Comparing Productivity Growth: An Exploration of French and U.S. Industrial and Firm Data," NBER Working Papers 0961, National Bureau of Economic Research, Inc.
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  6. Czarnitzki, Dirk & Hanel, Petr & Rosa, Julio Miguel, 2004. "Evaluating the Impact of R&D Tax Credits on Innovation: A Microeconometric Study on Canadian Firms," ZEW Discussion Papers 04-77, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
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  32. Ulrich Doraszelski & Jordi Jaumandreu, 2013. "R&D and Productivity: Estimating Endogenous Productivity," Review of Economic Studies, Oxford University Press, vol. 80(4), pages 1338-1383.
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