Total Factor Productivity And R&D In The Production Function

A production function is used to estimate total factor productivity and the contribution of R&D to growth. The impact of R&D is found to be higher than in most prior studies, for two reasons. First, the R&D stock is larger, due to the use of a longer time series with base values starting in 1921, and the assumption of no technical depreciation of knowledge. Second, the elasticity of R&D increases over time. In accounting for post-WWII growth, the results for 1948–1980 are consistent with earlier findings. Technical advance accelerated dramatically in the 1960s, but collapsed in the mid-1970s. Starting in the early 1980s, however, the production function suggests a new interpretation. There was a stronger rebound in total factor productivity, lasting roughly through 2000. Thereafter, total factor productivity decelerated sharply in 2001–2007. The contribution of R&D to growth has varied over time. The largest effect occurred in 1948–1960. The impact of R&D fell off in the 1970s, and picked up to a smaller but still significant effect starting in the 1980s. Despite the larger stock and the increasing elasticity, R&D is found to have contributed on average less than half of total factor productivity.