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Quality Adjustment in Industry Deflators Strengthens Estimated Innovation–Productivity Relationships

Author

Listed:
  • Enghin Atalay
  • Ali Hortacsu
  • Nicole Kimmel
  • Chad Syverson

Abstract

How do investments in innovation translate into future productivity growth? Empirically answering this question is challenging. R&D spending is an observed input into the innovation process, but mapping it to productivity growth requires assumptions about the depreciation of R&D capital, gestation lags, and how well such expenditures capture true innovative effort (Hall, 2007). Patents, an alternative measure, capture successful innovations but vary widely in novelty (Kelly et al., 2021) and economic value (Kogan et al., 2017). Firms may forgo patenting to preserve secrecy, while others patent strategically to protect existing products even when their underlying innovations are marginal.

Suggested Citation

  • Enghin Atalay & Ali Hortacsu & Nicole Kimmel & Chad Syverson, 2026. "Quality Adjustment in Industry Deflators Strengthens Estimated Innovation–Productivity Relationships," Working Papers 26-22, Federal Reserve Bank of Philadelphia.
    • Handle: RePEc:fip:fedpwp:103326
    DOI: 10.21799/frbp.wp.2026.22
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    Keywords

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    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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