An empirical note on the long-run effects of public and private R&D on TFP

Herzer, Dierk (2020): An empirical note on the long-run effects of public and private R&D on TFP.

Abstract

Several studies have examined the long-run effects of public and private R&D on TFP with mixed results. A common feature of these studies is the use of stocks of public and private R&D capital, constructed under the implicit assumption that the prices of GDP, public R&D, and private R&D move identically. Thus, the results of these studies may be biased to the extent that this assumption is violated. The main contribution of this note is to avoid this bias by using numbers of public and private sector researchers to measure R&D activity in the public and private sector. Contrary to previous studies, it is found—using numbers of researchers in the public and private sector—that there is strong evidence of a significant positive long-run effect of both public and private R&D on TFP and of a greater effect of public R&D than private R&D. Consistent with the mixed evidence reported in the literature, it is also found that the use of public and private R&D stocks produces mixed results regarding the long-run effects of public and private R&D on TFP.

• Item Type: MPRA Paper
• Language: English
• Keywords: public R&D, private R&D, total factor productivity, panel cointegration
• Subjects: O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O11 - Macroeconomic Analyses of Economic Development; O - Economic Development, Innovation, Technological Change, and Growth > O3 - Innovation ; Research and Development ; Technological Change ; Intellectual Property Rights > O30 - General; O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O47 - Empirical Studies of Economic Growth ; Aggregate Productivity ; Cross-Country Output Convergence

References

Bassanini, A., Scarpetta, S., Hemmings, P., 2001. The driving forces of economic growth: panel data evidence for the OECD countries. OECD Economic Studies, 33, 9-56.

Becker, B., 2015. Public R&D policies and private R&D investment: A survey of the empirical evidence. Journal of Economic Surveys, 29, 917-942.

Bengoa, M., Martínez-San Román, V., Pérez, P., 2017. Do R&D activities matter for productivity? A regional spatial approach assessing the role of human and social capital. Economic Modelling, 60, 448-461.

Bernard, A., Jones, C., 1996. Comparing apples to oranges: Productivity convergence and measurement across industries and countries. American Economic Review, 86, 1216-38.

Chudik, A., Mohaddes K., Pesaran, M.H., & Raissi M., 2016. Long-run effects in large heterogeneous panel data models with cross-sectionally correlated errors. Advances in Econometrics, 36, 85-135.

Cette, G., Koehl, L., Philippon, T., 2020. Labor share. Economics Letters, 188, 108979

Coe, D.T., Helpman, E., Hoffmaister, A.W., 2009. International R&D spillovers and institutions. European Economic Review, 53, 723-741.

Erken, H., Donselaar, P., Thurik, R., 2009. Total factor productivity and the role of entrepreneurship. Tinbergen Institute Discussion Paper 2009-034/3.

Gengenbach, C., Urbain, J.-P., Westerlund, J., 2016. Error correction testing in panels with common stochastic trends. Journal of Applied Econometrics, 31, 982-1004.

Guellec, D., Van Pottelsberghe de la Potterie, B., 2004. From R&D to productivity growth: Do the institutional settings and the source of funds of R&D matter? Oxford Bulletin of Economics and Statistics, 66, 353-378.

Hansen, W.L., Guidugli, T.F., 1990. Comparing salary and employment gains for higher education administrators and faculty members. Journal of Higher Education, 61, 142-159.

Im, K.S., Pesaran, M.H., Shin, Y., 2003. Testing for unit roots in heterogeneous panels. Journal of Econometrics, 115, 53-74.

Jones, C.I., 1995. R&D-based models of economic growth. Journal of Political Economy, 103, 759-784.

Kao, C., 1999. Spurious regression and residual-based tests for cointegration in panel data. Journal of Econometrics, 90, 1-44.

Kao, C., Chiang, M., 2000. On the estimation and inference of a cointegrated regression in panel data. Advances in Econometrics, 15, 179-222.

Karabarbounis, L., Neiman, B., 2014. The global decline of the labor share. Quarterly Journal of Economics, 129, 61-103.

Lichtenberg, F., 1993. R&D investment and international productivity differences. NBER Working Paper No. 4161, National Bureau of Economic Research, Cambridge, MA.

Luintel, K.B., Khan, M., Theodoridis, K., 2014. On the robustness of R&D. Journal of Productivity Analysis, 42, 137-155.

Park, W.G., International R&D spillovers and OECD economic growth. Economic Inquiry, 33, 571-591.

Pedroni, P., 1999. Critical values for cointegration tests in heterogeneous panels with multiple regressors. Oxford Bulletin of Economics and Statistics, 61, 653-670.

Pedroni, P., 2001. Purchasing power parity tests in cointegrated panels. Review of Economics and Statistics, 83, 727-731.

Pesaran, M.H., 2007. A simple panel unit root test in the presence of cross-section dependence. Journal of Applied Econometrics, 22, 265-312.

Pesaran, M.H., Shin, Y., Smith, R.P., 1999. Pooled mean group estimation of dynamic heterogeneous panels. Journal of the American Statistical Association, 94, 621-634.

Soete, L.L.G, Verspagen, B., Ziesemer, T.H.W. The productivity effect of public R&D in the Netherlands. Economics of Innovation and New Technology, 29, 31-47.

van Elk, R., ter Weel, B., van der Weil, K., Wouterse, B., 2019. Estimating the returns to public R&D investments: Evidence from production function models. De Economist, 167, 45-87.

Voutsinas, I., Tsamadias, C., 2014. Does research and development capital affect total factor productivity? Evidence from Greece. Economics of Innovation and New Technology, 23, 631-651.

Westerlund, J., 2005. New simple tests for panel cointegration. Econometric Reviews, 24, 297-316.