R&D, Investment and Industry Dynamics

38 Pages Posted: 28 Jun 2004 Last revised: 12 Aug 2010

See all articles by Saul Lach

Saul Lach

Hebrew University of Jerusalem - Department of Economics; CEPR

Rafael Rob

University of Pennsylvania - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: April 1992

Abstract

We present a model of industry evolution where the dynamics are driven by a process of endogenous innovations, followed by subsequent embodiments in physical capital. Traditionally, the only distinction between R&D and physical investment was one of labeling: the first process accumulates an intangible stock (knowledge) while the second accumulates physical capital; both stocks affect output in a symmetric fashion. We argue that the story is not that simple, and there is more to it than differences in the object of accumulation. Our model stresses the causal relationship between past R&D expenditures and current investments in machinery and equipment. This causality pattern, which is supported by the data, also explains the observed higher volatility of physical investment (relative to R&D expenditures).

Suggested Citation

Lach, Saul and Rob, Rafael, R&D, Investment and Industry Dynamics (April 1992). NBER Working Paper No. w4060, Available at SSRN: https://ssrn.com/abstract=325740

Saul Lach (Contact Author)

Hebrew University of Jerusalem - Department of Economics ( email )

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HOME PAGE: http://economics.huji.ac.il/facultye/saul/saul.html

CEPR

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Rafael Rob

University of Pennsylvania - Department of Economics ( email )

Ronald O. Perelman Center for Political Science
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Philadelphia, PA 19104-6297
United States
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