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Estimating dynamic R&D demand: An analysis of costs and long-run benefits

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

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 longrun 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 hightech 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 ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research in its series ZEW Discussion Papers with number 13-089.

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Date of creation: 2013
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Handle: RePEc:zbw:zewdip:13089
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  1. 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.
  2. Bronwyn H. Hall & Jacques Mairesse & Pierre Mohnen, 2010. "Measuring the Returns to R&D," CIRANO Working Papers 2010s-02, CIRANO.
  3. Bruno Crepon & Emmanuel Duguet & Jacques Mairesse, 1998. "Research, Innovation, and Productivity: An Econometric Analysis at the Firm Level," NBER Working Papers 6696, National Bureau of Economic Research, Inc.
  4. Jacques Mairesse & Pierre Mohnen, 2010. "Using Innovation Surveys for Econometric Analysis," CIRANO Working Papers 2010s-15, CIRANO.
  5. Bernstein, Jeffrey I. & Nadiri, M. Ishaq, 1988. "Research and Development and Intraindustry Spillovers: An Empirical Application of Dynamic Duality," Working Papers 88-06, C.V. Starr Center for Applied Economics, New York University.
  6. 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.
  7. Mark J. Roberts & Daniel Yi Xu & Xiaoyan Fan & Shengxing Zhang, 2012. "A Structural Model of Demand, Cost, and Export Market Selection for Chinese Footwear Producers," NBER Working Papers 17725, National Bureau of Economic Research, Inc.
  8. Fred Gault (ed.), 2013. "Handbook of Innovation Indicators and Measurement," Books, Edward Elgar, number 14427.
  9. 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.
  10. 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).
  11. Zvi Griliches, 1998. "The Search for R&D Spillovers," NBER Chapters, in: R&D and Productivity: The Econometric Evidence, pages 251-268 National Bureau of Economic Research, Inc.
  12. 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.
  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. Hall, Bronwyn H., 2011. "Innovation and productivity," MERIT Working Papers 028, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
  15. 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.
  16. repec:fth:inseep:9833 is not listed on IDEAS
  17. 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.
  18. 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.
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