Productivity Puzzles and R & D : Another Nonexplanation

  • Griliches Z
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A number of facts are not in dispute. Around 1974-75, output growth and associated productivity measures dropped sharply in the United States and in most of other western industrializes nations and continued at a rather low rates for most of the rest of the 1970s. This drop in productivity growth was actually larger, in absolute terms, in some other countries (such as Canada, Japan, and Sweden) than in the United States, making explanations for these events which rely heavily on specifically U.S.-based causes or arguments somewhat less plausible. Whether the productivity slowdown has come to an end in the mid-1980s is still very much in dispute. So too is the possibility that the slowdown actually started earlier, in the mid-1960s, as is implied by some of the more inclusive, multifactor productivity measures. During the late 1960s the growth in research and development (R&D) investment slowed down markedly (in constant dollars) and did not really recover until the late 1970s. Basic research was especially hard hit, showing a substantial absolute decline during the same period. Whether this slowdown in the investment in new technologies can account for the observed productivity slowdown is a fascinating question. I shall argue below that it cannot, at least not yet, since its effects take a long time to work themselves through the innovation and diffusion processes. The oil price hikes of the early and late 1970s and their macro-consequences are, therefore, the most likely direct causes of these pervasive declines in the growth rate of productivity. I will begin, however, by reviewing first some relevant aspects of the productivity slowdown and some of the explanations for it proffered in the literature.

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  • Zvi Griliches

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