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R&D and productivity : estimating production functions when productivity is endogenous

  • Jaumandreu, Jordi
  • Doraszelski, Ulrich

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 firmlevel productivity over time.

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Paper provided by Universidad Carlos III de Madrid. Departamento de Economía in its series UC3M Working papers. Economics with number we078652.

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Date of creation: Dec 2007
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Handle: RePEc:cte:werepe:we078652
Contact details of provider: Web page: http://www.eco.uc3m.es/

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  1. Ackerberg, Daniel & Caves, Kevin & Frazer, Garth, 2006. "Structural identification of production functions," MPRA Paper 38349, University Library of Munich, Germany.
  2. Rachel Griffith & Stephen Redding & John Van Reenen, 2000. "Mapping the two faces of R&D : productivity growth in a panel of OECD industries," LSE Research Online Documents on Economics 784, London School of Economics and Political Science, LSE Library.
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  8. Ariel Pakes & Mark Schankerman, 1984. "An Exploration into the Determinants of Research Intensity," NBER Chapters, in: R&D, Patents, and Productivity, pages 209-232 National Bureau of Economic Research, Inc.
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  10. Jaffe, Adam B, 1986. "Technological Opportunity and Spillovers of R&D: Evidence from Firms' Patents, Profits, and Market Value," American Economic Review, American Economic Association, vol. 76(5), pages 984-1001, December.
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  12. Whitney Newey & James Powell & Francis Vella, 1998. "Nonparametric Estimation of Triangular Simultaneous Equations Models," Working papers 98-16, Massachusetts Institute of Technology (MIT), Department of Economics.
  13. Petia Topalova, 2004. "Trade Liberalization and Firm Productivity; The Case of India," IMF Working Papers 04/28, International Monetary Fund.
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  16. Griliches, Zvi & Regev, Haim, 1995. "Firm productivity in Israeli industry 1979-1988," Journal of Econometrics, Elsevier, vol. 65(1), pages 175-203, January.
  17. Douglas Rivers & Quang Vuong, 2002. "Model selection tests for nonlinear dynamic models," Econometrics Journal, Royal Economic Society, vol. 5(1), pages 1-39, June.
  18. Ackerberg, Daniel & Lanier Benkard, C. & Berry, Steven & Pakes, Ariel, 2007. "Econometric Tools for Analyzing Market Outcomes," Handbook of Econometrics, in: J.J. Heckman & E.E. Leamer (ed.), Handbook of Econometrics, edition 1, volume 6, chapter 63 Elsevier.
  19. Nina Pavcnik, 2002. "Trade Liberalization, Exit, and Productivity Improvements: Evidence from Chilean Plants," Review of Economic Studies, Oxford University Press, vol. 69(1), pages 245-276.
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  21. Xulia González & Jordi Jaumandreu & Consuelo Pazó, 2001. "Barriers to innovation and subsidy e¤ectiveness," Working Papers 0112, Universidade de Vigo, Departamento de Economía Aplicada.
  22. Bronwyn H. Hall & Jacques Mairesse, 1992. "Exploring the Relationship Between R&D and Productivity in French Manufacturing Firms," NBER Working Papers 3956, National Bureau of Economic Research, Inc.
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  25. Chunrong Ai & Xiaohong Chen, 2003. "Efficient Estimation of Models with Conditional Moment Restrictions Containing Unknown Functions," Econometrica, Econometric Society, vol. 71(6), pages 1795-1843, November.
  26. Huergo, Elena & Jaumandreu, Jordi, 2004. "Firms' age, process innovation and productivity growth," International Journal of Industrial Organization, Elsevier, vol. 22(4), pages 541-559, April.
  27. Pilar Beneito, 2001. "R&D productivity and spillovers at the firms level: evidence from Spanish panel data," Investigaciones Economicas, Fundación SEPI, vol. 25(2), pages 289-313, May.
  28. Delgado, Miguel A. & Farinas, Jose C. & Ruano, Sonia, 2002. "Firm productivity and export markets: a non-parametric approach," Journal of International Economics, Elsevier, vol. 57(2), pages 397-422, August.
  29. Jaumandreu, Jordi & Mairesse, Jacques, 2006. "Using price and demand information to identify production functions," MPRA Paper 1247, University Library of Munich, Germany.
  30. Ariel Pakes & Mark Schankerman, 1984. "The Rate of Obsolescence of Patents, Research Gestation Lags, and the Private Rate of Return to Research Resources," NBER Chapters, in: R&D, Patents, and Productivity, pages 73-88 National Bureau of Economic Research, Inc.
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