Econometric Modelling of R&D and Australia's Productivity

Productivity Commission Staff Working Paper

595 Pages Posted: 22 May 2006

See all articles by Sid Shanks

Sid Shanks

Productivity Commission

Simon Zheng

Government of the Commonwealth of Australia - Productivity Commission

Date Written: April 2006

Abstract

The objective of this study was to undertake a series of modelling exercises that took advantage of the additional available data to explore the effects of R&D on Australian productivity.

However, despite the advances in data and methods, our research was unable to find a consistent robust measure of the impact of R&D on productivity. In addition to core data measurement issues, the most likely explanation is that the extra data period includes disruptions or 'shocks' to the relationship between R&D and productivity performance in Australia. This has frustrated attempts to clearly determine the magnitude of any long-term relationship between R&D and Australian productivity.

The study has covered a large expanse of modelling territory and has tested the limits of standard models to explain the effect of R&D on Australia's productivity. It has also explored a promising approach that deals with influences on R&D and on productivity in separate models, but within a simple related system. However, whilst it has provided some clear and plausible results, uncertainties about magnitudes of some effects remain. A major message from all the analysis is that, at least for the time being, empirical estimates of the effects of R&D on Australian productivity are unreliable. Any assessment therefore requires a high degree of judgment.

The views expressed in this paper are those of the staff involved and do not necessarily reflect those of the Productivity Commission.

Keywords: econometric modelling, productivity growth, research and development, innovation, R&D

JEL Classification: O

Suggested Citation

Shanks, Sid and Zheng, Simon, Econometric Modelling of R&D and Australia's Productivity (April 2006). Productivity Commission Staff Working Paper, Available at SSRN: https://ssrn.com/abstract=903720 or http://dx.doi.org/10.2139/ssrn.903720

Sid Shanks (Contact Author)

Productivity Commission ( email )

Level 28
35 Collins St.
Melbourne, Victoria, Victoria 3000
Australia

Simon Zheng

Government of the Commonwealth of Australia - Productivity Commission ( email )

Level 28
35 Collins St.
Melbourne, Victoria, Victoria 3000
Australia