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Estimating Dynamic R&D Demand: An Analysis of Costs and Long-Run Benefits

  • Bettina Peters
  • Mark J. Roberts
  • Van Anh Vuong
  • Helmut Fryges

Using firm-level data from the German manufacturing sector, we estimate a dynamic, structural model of the firm's decision to invest in R&D and quantify the cost and long-run benefit of this investment. The model incorporates and quantifies linkages between the firm's R&D investment, product and process innovations, and future productivity and profits. The dynamic model provides a natural measure of the long-run payoff to R&D as the difference in expected firm value generated by the R&D investment. For the median productivity firm, investment in R&D raises firm value by 3.0 percent in a group of high-tech industries but only 0.2 percent in low-tech industries. Simulations of the model show that cost subsidies for R&D can significantly affect R&D investment rates and productivity changes in the high-tech industries.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 19374.

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Date of creation: Aug 2013
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Handle: RePEc:nbr:nberwo:19374
Note: IO PR
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  1. Zvi Griliches, 1991. "The Search for R&D Spillovers," NBER Working Papers 3768, National Bureau of Economic Research, Inc.
  2. Bernstein, Jeffrey I. & Nadiri, M. Ishaq, 1990. "Product Demand, Cost Of Production, Spillovers And The Social Rate Or Return To R&D," Working Papers 90-53, C.V. Starr Center for Applied Economics, New York University.
  3. G. Steven Olley & Ariel Pakes, 1992. "The Dynamics of Productivity in the Telecommunications Equipment Industry," NBER Working Papers 3977, National Bureau of Economic Research, Inc.
  4. Bronwyn H. Hall, 2011. "Innovation and Productivity," NBER Working Papers 17178, National Bureau of Economic Research, Inc.
  5. Bronwyn H. Hall & Jacques Mairesse & Pierre Mohnen, 2009. "Measuring the Returns to R&D," NBER Working Papers 15622, National Bureau of Economic Research, Inc.
  6. Jeffrey I. Bernstein & M. Ishaq Nadiri, 1986. "Research and Development and Intraindustry Spillovers: An Empirical Application of Dynamic Duality," NBER Working Papers 2002, National Bureau of Economic Research, Inc.
  7. 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.
  8. Daniel Yi Xu & Mark Roberts, 2012. "A Structural Model of Dmand, Cost, and Export Market Selection for Chinese Footwear Producers," 2012 Meeting Papers 294, Society for Economic Dynamics.
  9. 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.
  10. Bruno Crepon & Emmanuel Duguet & Jacques Mairesse, 1998. "Research, Innovation And Productivity: An Econometric Analysis At The Firm Level," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 7(2), pages 115-158.
  11. repec:fth:inseep:9833 is not listed on IDEAS
  12. Mohnen, Pierre & Mairesse, Jacques, 2010. "Using Innovation Surveys for Econometric Analysis," MERIT Working Papers 023, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
  13. Bee Yan Aw & Mark J. Roberts & Daniel Yi Xu, 2009. "R&D Investment, Exporting, and Productivity Dynamics," NBER Working Papers 14670, National Bureau of Economic Research, Inc.
  14. Crepon, B. & Duguet, E. & Mairesse, J., 1998. "Research Investment, Innovation and Productivity: An Econometric Analysis at the Firm Level," Papiers d'Economie Mathématique et Applications 98.15, Université Panthéon-Sorbonne (Paris 1).
  15. Mark J. Roberts & Van Anh Vuong, 2013. "Empirical Modeling of R&D Demand in a Dynamic Framework," Applied Economic Perspectives and Policy, Agricultural and Applied Economics Association, vol. 35(2), pages 185-205.
  16. Rust, John, 1987. "Optimal Replacement of GMC Bus Engines: An Empirical Model of Harold Zurcher," Econometrica, Econometric Society, vol. 55(5), pages 999-1033, September.
  17. 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.
  18. Fred Gault (ed.), 2013. "Handbook of Innovation Indicators and Measurement," Books, Edward Elgar, number 14427, 6.
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