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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?

Listed author(s):
  • 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. Huffman, Wallace & Evenson, Robert E., 1987. "Research Bias Effects for Input and Output Decisions: An Application to U.S. Cash Grain Farms," Staff General Research Papers Archive 11016, Iowa State University, Department of Economics.
  2. David Schimmelpfennig & Colin Thirtle, 1999. "The Internationalization Of Agricultural Technology: Patents, R&D Spillovers, And Their Effects On Productivity In The European Union And United States," Contemporary Economic Policy, Western Economic Association International, vol. 17(4), pages 457-468, October.
  3. 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.
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  7. 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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  11. J. Stephen Clark & Curtis E. Youngblood, 1992. "Estimating Duality Models with Biased Technical Change: A Time Series Approach," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 74(2), pages 353-360.
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  15. Lau, Lawrence J., 1976. "A characterization of the normalized restricted profit function," Journal of Economic Theory, Elsevier, vol. 12(1), pages 131-163, February.
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