Measuring the returns of R&D -- An empirical study of the German manufacturing sector over 45 years

To link to full-text access for this article, visit this link: http://dx.doi.org/10.1016/j.respol.2009.07.008 Byline: Guenter Lang Keywords: Productivity; Innovation; Research and development; Diffusion; Decay Abstract: Motivated by recent statistics that show significant growth in labor productivity, this paper seeks to analyze the long-term relationship between domestic R&D, knowledge stock and productivity dynamics. Time series data of the German manufacturing industry is used to estimate a variable cost function with the stock of knowledge being dependent upon current and past R&D spending. The estimates indicate that 50% of the effects of R&D on the knowledge stock appear within 4 years. However, the rate of return on R&D are shown to be drastically declining; recent rates of return on R&D are estimated to have reached an all-time low spanning the last 45 years. Current yields of R&D are only one third compared to the sixties. In conclusion, though the productivity slowdown of the seventies seems to have been overcome, this is not attributed to R&D investments. Author Affiliation: Department of Economics, German University in Cairo, Al Tagamoa Al Khames, 11835 Cairo, Egypt Article History: Received 20 May 2008; Revised 9 March 2009; Accepted 20 July 2009