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R&D and Non-Linear Productivity Growth of Heterogeneous Firms

The present paper studies the relationship between R&D investment and firm productivity growth by explicitly accounting for non-linearities in the R&D-productivity relationship and inter-sectoral firm heterogeneity. In order to address these issues, we employ a two step estimation approach, and match two firm-level panel data sets for the OECD countries, which allow us to relax both the linearity and homogeneity assumptions of the canonical Griliches (1979) knowledge capital model. Our results suggest that: (i) R&D investment increases firm productivity with an average elasticity of 0.15; (ii) the impact of R&D investment on firm productivity is differential at different levels of R&D intensity – the productivity elasticity ranges from -0.02 for low levels of R&D intensity to 0.33 for high levels of R&D intensity; (iii) the relationship between R&D expenditures and productivity growth is non-linear, and only after a certain critical mass of R&D is reached, the productivity growth is significantly positive; (iv) there are important intersectoral differences with respect to R&D investment and firm productivity – high-tech sectors’ firms not only invest more in R&D, but also achieve more in terms of productivity gains connected with research activities.

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File URL: http://iri.jrc.ec.europa.eu/documents/10180/ee9bf20a-acb1-4a5b-9c3c-90366db3b3d9
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Paper provided by Institute of Prospective Technological Studies, Joint Research Centre in its series JRC-IPTS Working Papers on Corporate R&D and Innovation with number 2012-06.

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Length: 33 pages
Date of creation: Dec 2012
Date of revision:
Handle: RePEc:ipt:wpaper:201206
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  1. Olley, G Steven & Pakes, Ariel, 1996. "The Dynamics of Productivity in the Telecommunications Equipment Industry," Econometrica, Econometric Society, vol. 64(6), pages 1263-97, November.
  2. Cohen, Wesley M & Levinthal, Daniel A, 1989. "Innovation and Learning: The Two Faces of R&D," Economic Journal, Royal Economic Society, vol. 99(397), pages 569-96, September.
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  4. Zvi Griliches & Jacques Mairesse, 1991. "Comparing Productivity Growth: An Exploration of French and U.S. Industrial and Firm Data," NBER Chapters, in: International Volatility and Economic Growth: The First Ten Years of The International Seminar on Macroeconomics, pages 45-82 National Bureau of Economic Research, Inc.
  5. Zvi Griliches, 1958. "Research Costs and Social Returns: Hybrid Corn and Related Innovations," Journal of Political Economy, University of Chicago Press, vol. 66, pages 419.
  6. D'Artis Kancs & Pavel Ciaian, 2011. "Modelling the flow of knowledge and human capital: a framework of innovative capital," International Journal of Public Policy, Inderscience Enterprises Ltd, vol. 7(1/2/3), pages 134-160.
  7. Pietro Moncada-Paternò-Castello & Constantin Ciupagea & Keith Smith & Alexander Tübke & Mike Tubbs, 2009. "Does Europe perform too little corporate R&D? A comparison of EU and non-EU corporate R&D performance," JRC-IPTS Working Papers on Corporate R&D and Innovation 2009-11, Institute of Prospective Technological Studies, Joint Research Centre.
  8. Harhoff, Dietmar, 1994. "R&D and productivity in German manufacturing firms," ZEW Discussion Papers 94-01, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  9. Becker, Sascha O. & Egger, Peter H. & von Ehrlich, Maximilian, 2012. "Too much of a good thing? On the growth effects of the EU's regional policy," European Economic Review, Elsevier, vol. 56(4), pages 648-668.
  10. Ilke Van Beveren, 2007. "Total factor productivity estimation: A practical review," LICOS Discussion Papers 18207, LICOS - Centre for Institutions and Economic Performance, KU Leuven.
  11. Francesco Bogliacino, 2010. "Innovation and Employment: A firm level analysis with European R&D Scoreboard data," JRC-IPTS Working Papers on Corporate R&D and Innovation 2010-08, Institute of Prospective Technological Studies, Joint Research Centre.
  12. Subal Kumbhakar & Raquel Ortega-Argilés & Lesley Potters & Marco Vivarelli & Peter Voigt, 2012. "Corporate R&D and firm efficiency: evidence from Europe’s top R&D investors," Journal of Productivity Analysis, Springer, vol. 37(2), pages 125-140, April.
  13. Geroski, Paul A, 1998. "An Applied Econometrician's View of Large Company Performance," CEPR Discussion Papers 1862, C.E.P.R. Discussion Papers.
  14. Lesley Potters, 2009. "R&D in low-tech sectors," JRC-IPTS Working Papers on Corporate R&D and Innovation 2009-8, Institute of Prospective Technological Studies, Joint Research Centre.
  15. Xulia González & Jordi Jaumandreu, . "Threshold effects in product R&D decisions: theoretical framework and empirical analysis," Studies on the Spanish Economy 78, FEDEA.
  16. Jacques Mairesse & Pierre Mohnen, 2005. "The Importance of R&D for Innovation: A Reassessment Using French Survey Data," The Journal of Technology Transfer, Springer, vol. 30(2_2), pages 183-197, 01.
  17. 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.
  18. Zvi Griliches, 1998. "Issues in Assessing the Contribution of Research and Development to Productivity Growth," NBER Chapters, in: R&D and Productivity: The Econometric Evidence, pages 17-45 National Bureau of Economic Research, Inc.
  19. James Levinsohn & Amil Petrin, 2003. "Estimating Production Functions Using Inputs to Control for Unobservables," Review of Economic Studies, Wiley Blackwell, vol. 70(2), pages 317-341, 04.
  20. Czarnitzki, Dirk & Hanel, Petr & Rosa, Julio Miguel, 2011. "Evaluating the impact of R&D tax credits on innovation: A microeconometric study on Canadian firms," Research Policy, Elsevier, vol. 40(2), pages 217-229, March.
  21. Fabrizio, Kira R., 2009. "Absorptive capacity and the search for innovation," Research Policy, Elsevier, vol. 38(2), pages 255-267, March.
  22. James Levinsohn & Amil Petrin, 2003. "Estimating Production Functions Using Inputs to Control for Unobservables," Review of Economic Studies, Oxford University Press, vol. 70(2), pages 317-341.
  23. Raquel Ortega-Argilés & Mariacristina Piva & Lesley Potters & Marco Vivarelli, 2010. "Is Corporate R&D Investment In High-Tech Sectors More Effective?," Contemporary Economic Policy, Western Economic Association International, vol. 28(3), pages 353-365, 07.
  24. Cincera, Michele, 1997. "Patents, R&D, and Technological Spillovers at the Firm Level: Some Evidence from Econometric Count Models for Panel Data," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 12(3), pages 265-80, May-June.
  25. Czarnitzki, Dirk & Kraft, Kornelius & Thorwarth, Susanne, 2009. "The knowledge production of 'R' and 'D'," Economics Letters, Elsevier, vol. 105(1), pages 141-143, October.
  26. Furman, Jeffrey L. & Porter, Michael E. & Stern, Scott, 2002. "The determinants of national innovative capacity," Research Policy, Elsevier, vol. 31(6), pages 899-933, August.
  27. Chang, Chia-Lin & Robin, Stéphane, 2008. "Public policy, innovation and total factor productivity: An application to Taiwan's manufacturing industry," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 79(3), pages 352-367.
  28. Luintel, Kul B & Khan, Mosahid & Theodoridis, Konstantinos, 2010. "How Robust is the R&D-Productivity relationship? Evidence from OECD Countries," Cardiff Economics Working Papers E2010/7, Cardiff University, Cardiff Business School, Economics Section.
  29. Ulrich Doraszelski & Jordi Jaumandreu, 2013. "R&D and Productivity: Estimating Endogenous Productivity," Review of Economic Studies, Oxford University Press, vol. 80(4), pages 1338-1383.
  30. Aminata SISSOKO, 2011. "R&D Subsidies And Firm-Level Productivity: Evidence From France," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2011002, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES), revised 24 Oct 2013.
  31. 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.
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