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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

This paper estimates a dynamic structural model of discrete R&D investment and quantifies its cost and long-run benefit for German manufacturing firms. The dynamic model incorporates linkages between the firm's R&D choice, product and process innovations, and future productivity and profits. The long- run payoff to R&D is measured as the proportional difference in expected firm value generated by the R&D investment. It increases firm value by 6.7 percent for the median firm in high-tech manufacturing industries but only 2.8 percent in low-tech industries. Simulations show that reductions in maintence costs of innovation significantly raise investment rates and productivity while reductions in startup costs have little effect.

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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
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  1. 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.
  2. Jeffrey I. Bernstein & M. Ishaq Nadiri, 1991. "Product Demand, Cost of Production, Spillovers, and the Social Rate of Return to R&D," NBER Working Papers 3625, National Bureau of Economic Research, Inc.
  3. Bee Yan Aw & Mark J. Roberts & Daniel Yi Xu, 2011. "R&D Investment, Exporting, and Productivity Dynamics," American Economic Review, American Economic Association, vol. 101(4), pages 1312-44, June.
  4. 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.
  5. 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.
  6. 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.
  7. Jacques Mairesse & Pierre Mohnen, 2010. "Using Innovations Surveys for Econometric Analysis," NBER Working Papers 15857, National Bureau of Economic Research, Inc.
  8. repec:crs:wpaper:9833 is not listed on IDEAS
  9. Griliches, Zvi, 1992. " The Search for R&D Spillovers," Scandinavian Journal of Economics, Wiley Blackwell, vol. 94(0), pages S29-47, Supplemen.
  10. Hall, Bronwyn H. & Mairesse, Jacques & Mohnen, Pierre, 2010. "Measuring the Returns to R&D," Handbook of the Economics of Innovation, Elsevier.
  11. Zvi Griliches, 1979. "Issues in Assessing the Contribution of Research and Development to Productivity Growth," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 92-116, Spring.
  12. 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.
  13. Mark J. Roberts & Daniel Yi Xu & Xiaoyan Fan & Shengxing Zhang, 2012. "The Role of Firm Factors in Demand, Cost, and Export Market Selection for Chinese Footwear Producers," NBER Working Papers 17725, National Bureau of Economic Research, Inc.
  14. 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.
  15. Hall, B.H., 2011. "Innovation and productivity," MERIT Working Papers 028, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
  16. Fred Gault (ed.), 2013. "Handbook of Innovation Indicators and Measurement," Books, Edward Elgar Publishing, number 14427, April.
  17. 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).
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