An empirical note on the long-run effects of public and private R&D on TFP

Several studies have examined the long-run effects of public and private R&D on TFP with mixed results. A common feature of these studies is the use of stocks of public and private R&D capital, constructed under the implicit assumption that the prices of GDP, public R&D, and private R&D move identically. Thus, the results of these studies may be biased to the extent that this assumption is violated. The main contribution of this note is to avoid this bias by using numbers of public and private sector researchers to measure R&D activity in the public and private sector. Contrary to previous studies, it is found—using numbers of researchers in the public and private sector—that there is strong evidence of a significant positive long-run effect of both public and private R&D on TFP and of a greater effect of public R&D than private R&D. Consistent with the mixed evidence reported in the literature, it is also found that the use of public and private R&D stocks produces mixed results regarding the long-run effects of public and private R&D on TFP.