R&D and Productivity: Estimating Production Functions when Productivity is Endogenous

58 Pages Posted: 5 Jun 2008

See all articles by Ulrich Doraszelski

Ulrich Doraszelski

Harvard University - Department of Economics; University of Pennsylvania - Business & Public Policy Department

Jordi Jaumandreu

Universidad Carlos III de Madrid

Multiple version iconThere are 2 versions of this paper

Date Written: January 2008

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. By endogenizing the productivity process we build on the recent literature on structural estimation of production functions. 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 manufacturing firms in nine industries during the 1990s. Our findings indicate that the link between R&D and productivity is subject to a high degree of uncertainty, nonlinearity, and heterogeneity across firms.

By accounting for uncertainty and nonlinearity, we extend the knowledge capital model. Moreover, capturing heterogeneity gives us the ability to assess the role of R&D in determining the differences in productivity across firms and the evolution of firm-level productivity over time.

Keywords: Production function estimation, productivity, R&D

JEL Classification: D2

Suggested Citation

Doraszelski, Ulrich and Jaumandreu, Jordi, R&D and Productivity: Estimating Production Functions when Productivity is Endogenous (January 2008). , Vol. , pp. -, 2008. Available at SSRN: https://ssrn.com/abstract=1140565

Ulrich Doraszelski (Contact Author)

Harvard University - Department of Economics ( email )

Littauer Center
Cambridge, MA 02138
United States
617-495-2896 (Phone)
617-495-8570 (Fax)

University of Pennsylvania - Business & Public Policy Department

3641 Locust Walk
Philadelphia, PA 19104-6372
United States

Jordi Jaumandreu

Universidad Carlos III de Madrid ( email )

E-28903 Getafe (Madrid)
Spain

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