Is Embodied Technology the Result of Upstream R&D? Industry-Level Evidence

FRB of San Francisco Working Paper No. 2001-17

29 Pages Posted: 16 May 2005

See all articles by Daniel J. Wilson

Daniel J. Wilson

Federal Reserve Bank of San Francisco

Date Written: October 2001

Abstract

In this paper, I develop an industry-level index of capital-embodied R&D by capturing the extent of research and development directed at the capital goods in which a given industry invests. Compiling and adjusting data from the National Science Foundation and Commerce Department, I construct industry-level, time-series measures of this index and investigate its properties. The data allow me to identify the R&D directed at the development of specific types of capital rather than incorrectly assuming industry R&D spending is equivalent to R&D directed at the industry's product, an assumption typically made in the R&D literature. It is first shown that R&D directed at a type of capital is a good measure of its technological change. The constructed index of an industry's capital-embodied R&D is then compared to rates of embodied technological change estimated using plant-level manufacturing data. The index of embodied R&D is found to be positively and significantly related to the estimated rates of embodied technological change. Likewise, embodied R&D is shown to have a positive and significant effect on conventionally-measured total factor productivity growth (i.e. the Solow Residual). This has two implications. First, the capital component of the Solow Residual is generally mismeasured as it does not adequately capture technological change. Second, the constructed index of embodied R&D is proportional to true embodied technological change. Rates of embodied technological change are thus imputed for non-manufacturing industries using the estimated relationship between embodied R&D and embodied technological change found in the manufacturing data.

Keywords: Technology, R&D

Suggested Citation

Wilson, Daniel J., Is Embodied Technology the Result of Upstream R&D? Industry-Level Evidence (October 2001). FRB of San Francisco Working Paper No. 2001-17. Available at SSRN: https://ssrn.com/abstract=721083 or http://dx.doi.org/10.2139/ssrn.721083

Daniel J. Wilson (Contact Author)

Federal Reserve Bank of San Francisco ( email )

101 Market Street
Mail Stop 1130
San Francisco, CA 94105
United States

HOME PAGE: http://www.frbsf.org/economics/economists/dwilson.html

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