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R&D and Productivity: Estimating Production Functions when Productivity is Endogenous

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  • Doraszelski, Ulrich
  • Jaumandreu, Jordi

Abstract

We develop a simple estimator for production functions in the presence of endogenous productivity change that allows us to retrieve productivity and its relationship with R\&D at the firm level. By endogenizing the productivity process we build on the recent literature on structural estimation of production functions. Our dynamic investment model can be viewed as a generalization of the knowledge capital model (Griliches 1979) that has remained a cornerstone of the productivity literature for more than 25 years. We relax the assumptions on the R\&D process and examine the impact of the investment in knowledge on the productivity of firms. We illustrate our approach on an unbalanced panel of more than 1800 Spanish manufacturing firms in nine industries during the 1990s. Our findings indicate that the link between R&D and productivity is subject to a high degree of uncertainty, nonlinearity, and heterogeneity across firms. By accounting for uncertainty and nonlinearity, we extend the knowledge capital model. Moreover, capturing heterogeneity gives us the ability to assess the role of R&D in determining the differences in productivity across firms and the evolution of firm-level productivity over time.

Suggested Citation

  • Doraszelski, Ulrich & Jaumandreu, Jordi, 2008. "R&D and Productivity: Estimating Production Functions when Productivity is Endogenous," CEPR Discussion Papers 6636, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:6636
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    Cited by:

    1. Bee Yan Aw & Mark J. Roberts & Daniel Yi Xu, 2011. "R&D Investment, Exporting, and Productivity Dynamics," American Economic Review, American Economic Association, vol. 101(4), pages 1312-1344, June.
    2. Harrison, Rupert & Jaumandreu, Jordi & Mairesse, Jacques & Peters, Bettina, 2014. "Does innovation stimulate employment? A firm-level analysis using comparable micro-data from four European countries," International Journal of Industrial Organization, Elsevier, vol. 35(C), pages 29-43.
    3. Artuç, Erhan & Pourpourides, Panayiotis M., 2014. "R&D and aggregate fluctuations," Journal of Economic Dynamics and Control, Elsevier, vol. 47(C), pages 54-71.
    4. KONISHI Yoko & NISHIYAMA Yoshihiko, 2013. "Decomposition of Supply and Demand Shocks in the Production Function using the Current Survey of Production," Discussion papers 13003, Research Institute of Economy, Trade and Industry (RIETI).
    5. repec:wsi:ceprxx:v:01:y:2012:i:02:n:s1793969012500094 is not listed on IDEAS
    6. Dzhumashev, Ratbek & Mishra, Vinod & Smyth, Russell, 2016. "Exporting, R&D investment and firm survival in the Indian IT sector," Journal of Asian Economics, Elsevier, vol. 42(C), pages 1-19.
    7. Dietmar Harhoff & Elisabeth Mueller & John Reenen, 2014. "What are the Channels for Technology Sourcing? Panel Data Evidence from German Companies," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 23(1), pages 204-224, March.
    8. Escribano, Álvaro & Stucchi, Rodolfo, 2008. "Catching up in total factor productivity through the business cycle : evidence from Spanish manufacturing surveys," UC3M Working papers. Economics we085125, Universidad Carlos III de Madrid. Departamento de Economía.
    9. Emanuela Marrocu & Raffaele Paci & Marco Pontis, 2011. "Intangible capital and firms productivity (refereed paper)," ERSA conference papers ersa10p496, European Regional Science Association.
    10. Emanuela Marrocu & Raffaele Paci & Marco Pontis, 2012. "Intangible capital and firms' productivity," Industrial and Corporate Change, Oxford University Press, vol. 21(2), pages 377-402, April.
    11. Dieppe, Alistair & Mutl, Jan, 2013. "International R&D Spillovers: Technology Transfer vs. R&D Synergies," Working Paper Series 1504, European Central Bank.
    12. Guofang Huang & Yingyao Hu, 2011. "Estimating Production Functions with Robustness Against Errors in the Proxy Variables," Economics Working Paper Archive 583, The Johns Hopkins University,Department of Economics.
    13. Jarle Møen & Helge Sandvig Thorsen, 2017. "Publication Bias in the Returns to R&D Literature," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 8(3), pages 987-1013, September.
    14. Cassiman, Bruno & Vanormelingen, Stijn, 2013. "Profiting from Innovation: Firm Level Evidence on Markups," CEPR Discussion Papers 9703, C.E.P.R. Discussion Papers.
    15. Aitor Lacuesta & Omar Licandro & Teresa Molina & Luis A. Puch, 2009. "Innovation, Tangible and Intangible Investments and the Value of Spanish Firms," Working Papers 2009-19, FEDEA.
    16. Swati Dhingra, 2011. "Trading Away Wide Brands for Cheap Brands," CEP Discussion Papers dp1103, Centre for Economic Performance, LSE.
    17. Christian Sommeregger & Christoph Hammer & Daniel Bekesi & Matthias Koch, 2011. "A spatial panel data version of the knowledge capital model," ERSA conference papers ersa11p727, European Regional Science Association.
    18. Bos, Jaap W.B. & Economidou, Claire & Sanders, Mark W.J.L., 2013. "Innovation over the industry life-cycle: Evidence from EU manufacturing," Journal of Economic Behavior & Organization, Elsevier, vol. 86(C), pages 78-91.
    19. Chun, Hyunbae & Kim, Jung-Wook & Lee, Jason, 2015. "How does information technology improve aggregate productivity? A new channel of productivity dispersion and reallocation," Research Policy, Elsevier, vol. 44(5), pages 999-1016.
    20. Markus Eberhardt & Christian Helmers & Hubert Strauss, 2013. "Do Spillovers Matter When Estimating Private Returns to R&D?," The Review of Economics and Statistics, MIT Press, vol. 95(2), pages 436-448, May.
    21. Funke, Michael & Yu, Hao, 2009. "Economic growth across Chinese provinces : insearch of innovation-driven gains," BOFIT Discussion Papers 10/2009, Bank of Finland, Institute for Economies in Transition.
    22. Markus Eberhardt & Christian Helmers, 2010. "Untested Assumptions and Data Slicing: A Critical Review of Firm-Level Production Function Estimators," Economics Series Working Papers 513, University of Oxford, Department of Economics.
    23. Cassiman, Bruno & Golovko, Elena, 2009. "Productivity of Catalan firms. International exposure and (product) innovation," IESE Research Papers D/808, IESE Business School.
    24. Añón Higón, Dolores & Manjón Antolín, Miguel, 2012. "Multinationality, foreignness and institutional distance in the relation between R&D and productivity," Research Policy, Elsevier, vol. 41(3), pages 592-601.
    25. Fischer, Manfred M. & Scherngell, Thomas & Reismann, Martin, 2008. "Knowledge spillovers and total factor productivity. Evidence using a spatial panel data model," MPRA Paper 77762, University Library of Munich, Germany.

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    Keywords

    production function estimation; productivity; R&D;

    JEL classification:

    • D2 - Microeconomics - - Production and Organizations

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