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Measuring the social return to R&D

  • Charles I. Jones
  • John C. Williams

A large, empirical literature reports estimates of the rate of return to R&D ranging from 30 percent to over 100 percent, supporting the notion that there is too little private investment in research. This conclusion is challenged by the new growth theory. We derive analytically the relationship between the social rate of return to R&D and the coefficient estimates of the empirical literature. We show that these estimates represent a lower bound on the true social rate of return. Using a conservative estimate of the rate of return to R&D of about 30 percent, optimal R&D investment is at least four times larger than actual investment.

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Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series Finance and Economics Discussion Series with number 1997-12.

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Date of creation: 1997
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Handle: RePEc:fip:fedgfe:1997-12
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  1. Hall, Bronwyn H. & Mairesse, Jacques, 1995. "Exploring the relationship between R&D and productivity in French manufacturing firms," Journal of Econometrics, Elsevier, vol. 65(1), pages 263-293, January.
  2. Adam B. Jaffe, 1986. "Technological Opportunity and Spillovers of R&D: Evidence from Firms' Patents, Profits and Market Value," NBER Working Papers 1815, National Bureau of Economic Research, Inc.
  3. Kim B. Clark & Zvi Griliches, 1984. "Productivity Growth and R&D at the Business Level: Results from the PIMS Data Base," NBER Chapters, in: R&D, Patents, and Productivity, pages 393-416 National Bureau of Economic Research, Inc.
  4. Mehra, Rajnish & Prescott, Edward C., 1985. "The equity premium: A puzzle," Journal of Monetary Economics, Elsevier, vol. 15(2), pages 145-161, March.
  5. M. Ishaq Nadiri, 1993. "Innovations and Technological Spillovers," NBER Working Papers 4423, National Bureau of Economic Research, Inc.
  6. Zvi Griliches, 1998. "The Search for R&D Spillovers," NBER Chapters, in: R&D and Productivity: The Econometric Evidence, pages 251-268 National Bureau of Economic Research, Inc.
  7. Philippe Aghion & Peter Howitt, 1990. "A Model of Growth Through Creative Destruction," NBER Working Papers 3223, National Bureau of Economic Research, Inc.
  8. Stokey, Nancy L, 1995. "R&D and Economic Growth," Review of Economic Studies, Wiley Blackwell, vol. 62(3), pages 469-89, July.
  9. Scherer, F M, 1982. "Inter-Industry Technology Flows and Productivity Growth," The Review of Economics and Statistics, MIT Press, vol. 64(4), pages 627-34, November.
  10. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, June.
  11. Paul Romer, 1989. "Endogenous Technological Change," NBER Working Papers 3210, National Bureau of Economic Research, Inc.
  12. Nadiri, M.I., 1993. "Innovations and Technological Spillovers," Working Papers 93-31, C.V. Starr Center for Applied Economics, New York University.
  13. Bernstein, Jeffrey I & Nadiri, M Ishaq, 1989. "Research and Development and Intra-industry Spillovers: An Empirical Application of Dynamic Duality," Review of Economic Studies, Wiley Blackwell, vol. 56(2), pages 249-67, April.
  14. Nestor Terleckyj, 1980. "Direct and Indirect Effects of Industrial Research and Development on the Productivity Growth of Industries," NBER Chapters, in: New Developments in Productivity Measurement, pages 357-386 National Bureau of Economic Research, Inc.
  15. Sveikauskas, Leo, 1981. "Technological Inputs and Multifactor Productivity Growth," The Review of Economics and Statistics, MIT Press, vol. 63(2), pages 275-82, May.
  16. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth Through Creative Destruction," Scholarly Articles 12490578, Harvard University Department of Economics.
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