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R&D: A Small Contribution to Productivity Growth

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  • Diego Comin

Abstract

In this paper I evaluate the contribution of R&D investments to productivity growth. The basis for the analysis are the free entry condition and the fact that most R&D innovations are embodied. Free entry yields a relationship between the resources devoted to R&D and the growth rate of technology. Since innovators are small, this relationship is not directly affected by the size of R&D externalities, or the presence of aggregate diminishing returns in R&D after controlling for the growth rate of output and the interest rate. The embodiment of R&D-driven innovations bounds the size of the production externalities. The resulting contribution of R&D to productivity growth in the US is smaller than three to five tenths of one percentage point. This constitutes an upper bound for the case where innovators internalize the consequences of their R&D investments on the cost of conducting future innovations. From a normative perspective, this analysis implies that, if the innovation technology takes the form assumed in the literature, the actual US R&D intensity may be the socially optimal.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 10625.

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Date of creation: Jul 2004
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Publication status: published as Comin, Diego. "R&D: A Small Contribution To Productivity Growth," Journal of Economic Growth, 2004, v9(4,Dec), 391-421.
Handle: RePEc:nbr:nberwo:10625

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