Measuring the Returns of Research and Development: An Empirical Study of the German Manufacturing Sector over 45 Years

Günter Lang ()

No 10, Working Papers from The German University in Cairo, Faculty of Management Technology

Abstract: Motivated by recent statistics that show significant growth in labor productivity, this paper seeks to analyze the relationship between domestic R&D, knowledge stock and productivity dynamics. Time series data of the German manufacturing industry is used to estimate a variable cost function with the stock of knowledge being dependent upon current and past R&D spending. The estimates indicate that 50 percent of the effects of R&D on the knowledge stock appear within four years. However, the rate of return on R&D are shown to be drastically declining; recent rates of return on R&D are estimated to have reached an all-time low spanning the last 45 years. Current yields of R&D are only one third compared to the sixties. In conclusion, though the productivity slowdown of the seventies seems to have been overcome, this is not attributed to R&D investments.

Keywords: Productivity; innovation; research; development; technology; productivity slowdown (search for similar items in EconPapers)
JEL-codes: D24 L60 O31 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2008-05
New Economics Papers: this item is included in nep-eff, nep-ino, nep-knm and nep-tid
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