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R&D Capital and the Idea Production Function

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  • Jakub Growiec
  • Peter McAdam
  • Jakub dup Muck

Abstract

We supplement the “Idea Production Function” (IPF), whereby research and development (R&D) activity leads to growth, with measures of R&D capital. We construct the R&D capital stock in the United States and estimate the IPF with patent applications as R&D output, allowing for a flexible treatment of R&D productivity (over 1968–2019). The estimated substitution elasticity between R&D inputs is 0.7−0.8, which suggests that R&D capital is an essential factor in producing ideas and complementary to R&D labor. We identify a positive trend in R&D labor productivity (roughly 1 percent) and a cyclical variation of R&D capital productivity. Rather than “ideas getting harder to find,” the R&D capital needed to find them has become scarce.

Suggested Citation

  • Jakub Growiec & Peter McAdam & Jakub dup Muck, 2023. "R&D Capital and the Idea Production Function," Research Working Paper RWP 23-05, Federal Reserve Bank of Kansas City.
    • Handle: RePEc:fip:fedkrw:96357
    DOI: 10.18651/RWP2023-05
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    References listed on IDEAS

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    More about this item

    Keywords

    macroeconomics; Idea Production Function (IPF); R&D capital;
    All these keywords.

    JEL classification:

    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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