On the Relationship between R&D and Productivity: A Treatment Effect Analysis
27 Pages Posted: 9 May 2003
Date Written: April 2003
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
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