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Short and long-run returns to agricultural R&D in South Africa, or will the real rate of return please stand up?

  • Schimmelpfennig, David
  • Thirtle, Colin
  • van Zyl, Johan
  • Arnade, Carlos
  • Khatri, Yougesh

This paper briefly presents the results of a total factor productivity (TFP) study of South African commercial agriculture, for 1947-1997, and illustrates some potential pitfalls in rate of return to research (ROR) calculations. The lag between R&D and TFP is analyzed and found to be only 9 years, with a pronounced negative skew, reflecting the adaptive focus of the South African system. The two-stage approach gives a massive ROR of 170%. The predetermined lag parameters are then used in modeling the knowledge stock, to refine the estimates of the ROR from short- and long-run dual profit functions. In the short run, with the capital inputs treated as fixed, the ROR is a more reasonable 44%. In the long run, with adjustment of the capital stocks, it rises to 113%, which would reflect the fact that new technology is embodied in the capital items. However, the long-run model raises a new problem since capital stock adjustment takes 11 years, 2 years longer than the lag between R&D and TFP. If this is assumed to be the correct lag, the ROR falls to 58%, a best estimate. The paper draws attention to the possible sensitivity of rate of return calculations to assumed lag structure, particularly when the lag between changes in R&D and TFP is skewed. © 2000 Elsevier Science B. V. All rights reserved.

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Article provided by Blackwell in its journal Agricultural Economics.

Volume (Year): 23 (2000)
Issue (Month): 1 (June)
Pages: 1-15

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Handle: RePEc:eee:agecon:v:23:y:2000:i:1:p:1-15
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  1. Kislev, Yoav & Peterson, Willis, 1982. "Prices, Technology, and Farm Size," Journal of Political Economy, University of Chicago Press, vol. 90(3), pages 578-95, June.
  2. Zyl, J. Van & Vink, N. & Fenyes, T. I., 1987. "Labour-Related Structural Trends in South African Maize Production," Agricultural Economics of Agricultural Economists, International Association of Agricultural Economists, vol. 1(3), October.
  3. C. Thirtle & P. Bottomley, 1992. "Total Factor Productivity In Uk Agriculture, 1967-90," Journal of Agricultural Economics, Wiley Blackwell, vol. 43(3), pages 381-400.
  4. Evenson, Robert E. & Landau, Daniel & Ballou, Dale, 1987. "Agricultural Productivity Measures for U.S. States 1950-82," Evaluating Agricultural Research and Productivity, Proceedings of a Workshop, Atlanta, Georgia, January 29-30, 1987, Miscellaneous Publication 52 50019, University of Minnesota, Agricultural Experiment Station.
  5. Lau, Lawrence J., 1976. "A characterization of the normalized restricted profit function," Journal of Economic Theory, Elsevier, vol. 12(1), pages 131-163, February.
  6. Geweke, John F & Meese, Richard, 1981. "Estimating Regression Models of Finite but Unknown Order," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 22(1), pages 55-70, February.
  7. Schmidt, Peter, 1974. "An Argument for the Usefulness of the Gamma Distributed Lag Model," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 15(1), pages 246-50, February.
  8. Khatri, Yougesh & Thirtle, Colin & Van Zyl, Johan, 1995. "South African Agricultural Competitiveness: A Profit Function Approach to the Effects of Policies and Technology," 1994 Conference, August 22-29, 1994, Harare, Zimbabwe 183442, International Association of Agricultural Economists.
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