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The Rising Returns to R&D: Ideas are not getting harder to find

Author

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  • Ando, Yoshiki
  • Bessen, James
  • Wang, Xiupeng

Abstract

R&D investment has grown robustly, yet aggregate productivity growth has stagnated. Is this because “ideas are getting harder to find”? This paper uses micro-data from the US Census Bureau to explore the relationship between R&D and productivity in the manufacturing sector from 1976 to 2018. We find that both the elasticity of output (TFP) with respect to R&D and the marginal returns to R&D have risen sharply. Exploring factors affecting returns, we conclude that R&D obsolescence rates must have risen. Using a novel estimation approach, we find consistent evidence of sharply rising technological rivalry. These findings suggest that R&D has become more effective at finding productivity-enhancing ideas but these ideas may also render rivals’ technologies obsolete, making innovations more transient.

Suggested Citation

  • Ando, Yoshiki & Bessen, James & Wang, Xiupeng, 2025. "The Rising Returns to R&D: Ideas are not getting harder to find," MPRA Paper 124764, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:124764
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    Keywords

    R&D; innovation; productivity; obsolescence;
    All these keywords.

    JEL classification:

    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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