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

Ulrich Doraszelski and Jordi Jaumandreu ()

MPRA Paper from University Library of Munich, Germany

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.

Keywords: production function; knowledge capital; productivity; R&D (search for similar items in EconPapers)
JEL-codes: O3 (search for similar items in EconPapers)
Date: 2006
New Economics Papers: this item is included in nep-eff, nep-ino and nep-knm
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Related works:
Working Paper: R&D and Productivity: Estimating Production Functions when Productivity is Endogenous (2008) Downloads
Working Paper: R&D and productivity: estimating production functions when productivity is endogenous (2007) Downloads
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