Estimating the Returns to Public R&D Investments: Evidence from Production Function Models

Abstract

This paper analyses the returns to publicly performed R&D investments in 22 OECD countries. We exploit a dataset containing time-series from 1963 to 2011 and compare the estimates of different types of production function models. Robustness analyses are performed to test the sensitivity of the outcomes for particular specifications, sample selections, assumptions about the construction of R&D stocks, and variable definitions. Analyses based on Cobb–Douglas and translog production functions mostly yield statistically insignificant or negative returns. In these models we control for private and foreign R&D investments and the primary production factors. Models including additional controls, such as public capital, the stock of inward and outward foreign direct investment, and the shares of high-tech imports and exports, yield more positive returns. Our findings suggest that publicly performed R&D investments do not automatically foster GDP and TFP growth in production function models. Furthermore, our estimates suggest that economic returns to publicly performed R&D seem to depend on the specific national context.