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

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  • 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
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    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

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