R&D and Productivity Growth
Abstract
Technological change is an important determinant of long-run productivity growth and therefore of increases in living standards over time. Many analysts, aware of the importance of research and development (R&D) for new discoveries, have studied the connection between spending for R&D and productivity growth. As a result, a large number of empirical studies estimate the effect of R&D investment on such growth. This Congressional Budget Office (CBO) paper is not meant to be a survey of the empirical literature relating to R&D and productivity, instead, the paper draws on previous studies, including past surveys, to offer information bearing on three questions related to R&D and productivity growth. First, is R&D an important factor in explaining the growth of total factor productivity (TFP) at the economy-wide level? Second, if R&D is an important factor, how great is its impact? In practice, the main evidence related to these questions consists of econometric estimates of the elasticity of output with respect to R&D, which is defined as the percentage change in output that would be expected from a 1 percent increase in R&D investment. The majority of this paper examines previous studies and surveys to determine a reasonable estimate of the R&D elasticity for the U.S. economy. The third question that the paper examines is, given the shortcomings of the available data, is it worthwhile to add R&D spending to existing models of the economy? CBO uses several such long-run models to forecast growth of gross domestic product (GDP) and to analyze policy options, and TFP growth is an important variable in each one. Although economics has yet to fully explain the determinants of TFP growth, even a cursory glance at the empirical literature suggests that R&D plays an important role. If so, models of long-run economic growth will benefit from an explicit treatment of R&D, especially if the addition of that factor allows those models to better explain economic history.
Document Details
- Document Type
- Technical Report
- Publication Date
- Jun 01, 2005
- Accession Number
- ADA447094
Entities
People
- Robert Arnold
Organizations
- Congressional Budget Office