IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/1246.html
   My bibliography  Save this paper

R&D and productivity: Estimating production functions when productivity is endogenous

Author

Listed:
  • Doraszelski, Ulrich
  • Jaumandreu, Jordi

Abstract

We develop a simple estimator for production functions in the presence of endogenous productivity change that allows us to retrieve productivity and its relationship with R&D at the firm level. Our dynamic investment model can be viewed as a generalization of the knowledge capital model (Griliches 1979) that has remained a cornerstone of the productivity literature for more than 25 years. We relax the assumptions on the R&D process and examine the impact of the investment in knowledge on the productivity of firms. We illustrate our approach on an unbalanced panel of more than 1800 Spanish man- ufacturing firms in nine industries during the 1990s. Our ¯ndings indicate that the link between R&D and productivity is subject to a high degree of uncertainty, nonlinearity, and heterogeneity across firms. Abstracting from uncertainty and nonlinearity, as is done in the knowledge capital model, or assuming an exogenous process for productiv- ity, as is done in the recent literature on structural estimation of production functions, overlooks some of its most interesting features.

Suggested Citation

  • Doraszelski, Ulrich & Jaumandreu, Jordi, 2006. "R&D and productivity: Estimating production functions when productivity is endogenous," MPRA Paper 1246, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:1246
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/1246/1/MPRA_paper_1246.pdf
    File Function: original version
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Simeon Djankov & Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer, 2002. "The Regulation of Entry," The Quarterly Journal of Economics, Oxford University Press, vol. 117(1), pages 1-37.
    2. Zvi Griliches & Jacques Mairesse, 1995. "Production Functions: The Search for Identification," Harvard Institute of Economic Research Working Papers 1719, Harvard - Institute of Economic Research.
    3. Rachel Griffith & Stephen Redding & John Van Reenen, 2004. "Mapping the Two Faces of R&D: Productivity Growth in a Panel of OECD Industries," The Review of Economics and Statistics, MIT Press, vol. 86(4), pages 883-895, November.
    4. Nina Pavcnik, 2002. "Trade Liberalization, Exit, and Productivity Improvements: Evidence from Chilean Plants," Review of Economic Studies, Oxford University Press, vol. 69(1), pages 245-276.
    5. Robinson, Peter M, 1988. "Root- N-Consistent Semiparametric Regression," Econometrica, Econometric Society, vol. 56(4), pages 931-954, July.
    6. Kenneth L. Judd, 1998. "Numerical Methods in Economics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262100711, September.
    7. John Van Reenen & Rupert Harrison & Rachel Griffith, 2006. "How Special Is the Special Relationship? Using the Impact of U.S. R&D Spillovers on U.K. Firms as a Test of Technology Sourcing," American Economic Review, American Economic Association, vol. 96(5), pages 1859-1875, December.
    8. Jaffe, Adam B, 1986. "Technological Opportunity and Spillovers of R&D: Evidence from Firms' Patents, Profits, and Market Value," American Economic Review, American Economic Association, vol. 76(5), pages 984-1001, December.
    9. Marc-Andreas Muendler, 2004. "Estimating Production Functions When Productivity Change is Endogenous," CESifo Working Paper Series 1143, CESifo.
    10. Garry F. Barrett & Stephen G. Donald, 2003. "Consistent Tests for Stochastic Dominance," Econometrica, Econometric Society, vol. 71(1), pages 71-104, January.
    11. Xulia González & Jordi Jaumandreu & Consuelo Pazo, 2005. "Barriers to Innovation and Subsidy Effectiveness," RAND Journal of Economics, The RAND Corporation, vol. 36(4), pages 930-949, Winter.
    12. Ackerberg, Daniel & Lanier Benkard, C. & Berry, Steven & Pakes, Ariel, 2007. "Econometric Tools for Analyzing Market Outcomes," Handbook of Econometrics, in: J.J. Heckman & E.E. Leamer (ed.), Handbook of Econometrics, edition 1, volume 6, chapter 63, Elsevier.
    13. Richard Blundell & Stephen Bond, 2000. "GMM Estimation with persistent panel data: an application to production functions," Econometric Reviews, Taylor & Francis Journals, vol. 19(3), pages 321-340.
    14. Juan J Dolado & Carlos Garcia--Serrano & Juan F. Jimeno, 2002. "Drawing Lessons From The Boom Of Temporary Jobs In Spain," Economic Journal, Royal Economic Society, vol. 112(721), pages 270-295, June.
    15. Ariel Pakes & Mark Schankerman, 1984. "An Exploration into the Determinants of Research Intensity," NBER Chapters, in: R&D, Patents, and Productivity, pages 209-232, National Bureau of Economic Research, Inc.
    16. Huergo, Elena & Jaumandreu, Jordi, 2004. "Firms' age, process innovation and productivity growth," International Journal of Industrial Organization, Elsevier, vol. 22(4), pages 541-559, April.
    17. Ornaghi, Carmine, 2006. "Spillovers in product and process innovation: Evidence from manufacturing firms," International Journal of Industrial Organization, Elsevier, vol. 24(2), pages 349-380, March.
    18. Delgado, Miguel A. & Farinas, Jose C. & Ruano, Sonia, 2002. "Firm productivity and export markets: a non-parametric approach," Journal of International Economics, Elsevier, vol. 57(2), pages 397-422, August.
    19. repec:hrv:faseco:30747190 is not listed on IDEAS
    20. Marc-Andreas Muendler, 2004. "Estimating Production Functions When Productivity Change is Endogenous," CESifo Working Paper Series 1143, CESifo.
    21. Chunrong Ai & Xiaohong Chen, 2003. "Efficient Estimation of Models with Conditional Moment Restrictions Containing Unknown Functions," Econometrica, Econometric Society, vol. 71(6), pages 1795-1843, November.
    22. Jaumandreu, Jordi & Mairesse, Jacques, 2006. "Using price and demand information to identify production functions," MPRA Paper 1247, University Library of Munich, Germany.
    23. Tor Jakob Klette, 1996. "R&D, Scope Economies, and Plant Performance," RAND Journal of Economics, The RAND Corporation, vol. 27(3), pages 502-522, Autumn.
    24. Hall, Bronwyn H. & Hayashi, Fumio, 1989. "Research and Development as an Investment," Department of Economics, Working Paper Series qt8br8d266, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
    25. Petia Topalova & Amit Khandelwal, 2011. "Trade Liberalization and Firm Productivity: The Case of India," The Review of Economics and Statistics, MIT Press, vol. 93(3), pages 995-1009, August.
    26. Ackerberg, Daniel & Caves, Kevin & Frazer, Garth, 2006. "Structural identification of production functions," MPRA Paper 38349, University Library of Munich, Germany.
    27. Olley, G Steven & Pakes, Ariel, 1996. "The Dynamics of Productivity in the Telecommunications Equipment Industry," Econometrica, Econometric Society, vol. 64(6), pages 1263-1297, November.
    28. 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.
    29. Whitney K. Newey & James L. Powell & Francis Vella, 1999. "Nonparametric Estimation of Triangular Simultaneous Equations Models," Econometrica, Econometric Society, vol. 67(3), pages 565-604, May.
    30. Pilar Beneito, 2001. "R&D productivity and spillovers at the firms level: evidence from Spanish panel data," Investigaciones Economicas, Fundación SEPI, vol. 25(2), pages 289-313, May.
    31. Guido Fioretti, 2005. "The Production Function," Papers physics/0511191, arXiv.org.
    32. 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.
    33. Whitney K. Newey & James L. Powell, 2003. "Instrumental Variable Estimation of Nonparametric Models," Econometrica, Econometric Society, vol. 71(5), pages 1565-1578, September.
    34. Griliches, Zvi & Regev, Haim, 1995. "Firm productivity in Israeli industry 1979-1988," Journal of Econometrics, Elsevier, vol. 65(1), pages 175-203, January.
    35. Ariel Pakes & Mark Schankerman, 1984. "The Rate of Obsolescence of Patents, Research Gestation Lags, and the Private Rate of Return to Research Resources," NBER Chapters, in: R&D, Patents, and Productivity, pages 73-88, National Bureau of Economic Research, Inc.
    36. Douglas Rivers & Quang Vuong, 2002. "Model selection tests for nonlinear dynamic models," Econometrics Journal, Royal Economic Society, vol. 5(1), pages 1-39, June.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Florin Maican & Matilda Orth, 2017. "Productivity Dynamics and the Role of ‘Big-Box’ Entrants in Retailing," Journal of Industrial Economics, Wiley Blackwell, vol. 65(2), pages 397-438, June.
    2. David Greenstreet, 2007. "Exploiting Sequential Learning to Estimate Establishment-Level Productivity Dynamics and Decision Rules," Economics Series Working Papers 345, University of Oxford, Department of Economics.
    3. Hall, Bronwyn H. & Mairesse, Jacques & Mohnen, Pierre, 2010. "Measuring the Returns to R&D," Handbook of the Economics of Innovation, in: Bronwyn H. Hall & Nathan Rosenberg (ed.), Handbook of the Economics of Innovation, edition 1, volume 2, chapter 0, pages 1033-1082, Elsevier.
    4. Sergey Lychagin & Joris Pinkse & Margaret E. Slade & John Van Reenen, 2016. "Spillovers in Space: Does Geography Matter?," Journal of Industrial Economics, Wiley Blackwell, vol. 64(2), pages 295-335, June.
    5. Stucchi, Rodolfo & Escribano, Álvaro, 2008. "Catching up in total factor productivity through the business cycle : evidence from Spanish manufacturing surveys," UC3M Working papers. Economics we085125, Universidad Carlos III de Madrid. Departamento de Economía.
    6. Markus Eberhardt & Christian Helmers & Hubert Strauss, 2013. "Do Spillovers Matter When Estimating Private Returns to R&D?," The Review of Economics and Statistics, MIT Press, vol. 95(2), pages 436-448, May.
    7. Emir Malikov & Shunan Zhao & Subal C. Kumbhakar, 2020. "Estimation of firm‐level productivity in the presence of exports: Evidence from China's manufacturing," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 35(4), pages 457-480, June.
    8. Chad Syverson, 2011. "What Determines Productivity?," Journal of Economic Literature, American Economic Association, vol. 49(2), pages 326-365, June.
    9. Maican, Florin & Orth, Matilda, 2015. "A dynamic analysis of entry regulations and productivity in retail trade," International Journal of Industrial Organization, Elsevier, vol. 40(C), pages 67-80.
    10. Daniel A. Ackerberg & Kevin Caves & Garth Frazer, 2015. "Identification Properties of Recent Production Function Estimators," Econometrica, Econometric Society, vol. 83, pages 2411-2451, November.
    11. Marion Dovis & Juliette Milgram‐Baleix, 2009. "Trade, Tariffs and Total Factor Productivity: The Case of Spanish Firms," The World Economy, Wiley Blackwell, vol. 32(4), pages 575-605, April.
    12. Ornaghi, Carmine, 2006. "Spillovers in product and process innovation: Evidence from manufacturing firms," International Journal of Industrial Organization, Elsevier, vol. 24(2), pages 349-380, March.
    13. Dobbelaere, Sabien & Kiyota, Kozo & Mairesse, Jacques, 2015. "Product and labor market imperfections and scale economies: Micro-evidence on France, Japan and the Netherlands," Journal of Comparative Economics, Elsevier, vol. 43(2), pages 290-322.
    14. Amoroso, S., 2013. "Heterogeneity of innovative, collaborative, and productive firm-level processes," Other publications TiSEM f5784a49-7053-401d-855d-1, Tilburg University, School of Economics and Management.
    15. Aida Caldera, 2010. "Innovation and exporting: evidence from Spanish manufacturing firms," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 146(4), pages 657-689, December.
    16. Shepotylo, Oleksandr & Vakhitov, Volodymyr, 2012. "Services liberalization and productivity of manufacturing firms : evidence from Ukraine," Policy Research Working Paper Series 5944, The World Bank.
    17. Aguirregabiria, Victor, 2009. "Econometric Issues and Methods in the Estimation of Production Functions," MPRA Paper 15973, University Library of Munich, Germany.
    18. Yuriy Gorodnichenko, 2007. "Using Firm Optimization to Evaluate and Estimate Returns to Scale," NBER Working Papers 13666, National Bureau of Economic Research, Inc.
    19. Marian Rizov & Patrick Paul Walsh, 2009. "Productivity and Trade Orientation in UK Manufacturing," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 71(6), pages 821-849, December.
    20. Rachel Griffith & Stephen Redding & Helen Simpson, 2009. "Technological Catch‐Up And Geographic Proximity," Journal of Regional Science, Wiley Blackwell, vol. 49(4), pages 689-720, October.

    More about this item

    Keywords

    production function; knowledge capital; productivity; R&D;
    All these keywords.

    JEL classification:

    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:1246. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Joachim Winter). General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.