R&D Investment and International Productivity Differences

This paper extends previous research on the effect of investment on labor productivity at the country level by accounting for investment in R&D, as well as for investment in fixed and human capital. Privately-funded R&D investment is found to have a significant positive effect on productivity. Moreover, this effect appears to be quite large. The estimated social (national) rate of return to private R&D investment is about seven times as large as the return to investment in equipment and structures. The elasticity of GNP with respect to the privately-funded research capital stock is about 7 %--about 1(3 as large as the physical-capital elasticity (whose estimate is substantially reduced when R&D is accounted for). These findings do not support the hypothesis that there arecomplete, or at least instantaneous, international R&D spillovers. The social marginal product of government-funded research capital appears to be much lower than that of private research capital.