On the Relationship between R&D and Productivity: A Treatment Effect Analysis

27 Pages Posted: 9 May 2003

See all articles by Giuseppe Medda

Giuseppe Medda

University of Sassari

Claudio A. Piga

Keele University - Keele Management School

Donald S. Siegel

University at Albany, SUNY

Date Written: April 2003

Abstract

This study uses firm level data from two detailed surveys of Italian manufacturing firms to study the relationship between R&D expenditures and productivity growth. The analysis considers the different contributions of various forms of R&D (product, process, internal, external in collaboration with universities, research centres and other firms) to Total Factor Productivity (TFP). Thus, this paper answers the call for more research on the links between a firm's external R&D and its productivity. In the cross-section econometric analysis, we estimate a Treatment Effects model based on the assumption that the decision to carry out R&D is endogenous. We found evidence supporting such a methodological approach.

The main results reveal a positive and statistically significant relationship between the detailed measures of R&D and TFP. It is noteworthy that among external R&D investments, only expenditures for projects run in collaboration with other firms turn out to be highly significant, while cooperation in R&D with universities does not seem to lead to productivity enhancements. Because of the public good nature of research, firms may resort to do R&D within laboratories run by universities only when the outcome of the research does not have important strategic consequences.

Keywords: Total Factor Productivity, Selectivity, Manufacturing, Firm Level

JEL Classification: C21, C80, D24, O30

Suggested Citation

Medda, Giuseppe and Piga, Claudio A. and Siegel, Donald S., On the Relationship between R&D and Productivity: A Treatment Effect Analysis (April 2003). FEEM Working Paper No. 34.2003. Available at SSRN: https://ssrn.com/abstract=385440 or http://dx.doi.org/10.2139/ssrn.385440

Giuseppe Medda

University of Sassari ( email )

via Muroni 25
Sassari, Sassari 07100
Italy

Claudio A. Piga (Contact Author)

Keele University - Keele Management School ( email )

Darwin Building
Staffordshire, ST5 5BG
United Kingdom

Donald S. Siegel

University at Albany, SUNY ( email )

1400 Washington Avenue
Albany, NY 12222
United States
(518) 956-8311 (Phone)

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