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March, 1986, Vol. 109, No. 3
The contribution of R&D
to productivity growth
Many observers believe that research and development (R&D) conducted in U.S. industry is an important ingredient in the Nation's productivity improvement.1 The Bureau of Labor Statistics has recently conducted work aimed at establishing the contribution of R&D to productivity growth.2 The study proceeded along much the same lines as prior BLS analysis of the contribution of the physical capital stock to productivity.3 This work calculated real annual investment in research and development and estimated the R&D stock to determine the annual and long-term productivity effects of research spending in the private nonfarm business sector. This article summarizes the main conclusions which have emerged from that analysis.
Between 1948 and 1982, U.S. multifactor productivity growththe increase in output beyond the contribution of labor and capital inputswas 1.2 percent per year. However, the long-term productivity trend for the postwar period reflects very different developments during two distinct subperiods. Multifactor productivity increased at an annual rate of 1.7 percent from 1948 to 1973, but then decreased by 0.2 percent per year through 1982. The results reported below indicate that the R&D stock contributed 0.1-0.2 percent annually to 1948-82 productivity growth, but no substantial effect on the 1973-82 productivity slowdown.
Research and development provides both direct productivity benefits to industries conducting research, such as computer or aircraft manufacturers, and indirect benefits to industries further along the chain of production, as occurs when banks take advantage of new computer technology or commercial airlines realize gains from the purchase of better aircraft. This study deals only with the direct productivity benefits accruing to industries actually conducting the research. The reader should realize that, on balance, the indirect benefits gained as new technology spreads to other parts of the economy are likely to be greater than the direct contribution of research. Future Bureau work will attempt to determine the magnitude of these indirect effects.
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1 A National Academy of Sciences report which suggested improvements in the Nation's productivity statistics paid substantial attention to the role of research and development in productivity growth. See Measurement and Interpretation of Productivity (Washington, National Academy of Sciences, 1979). John W. Kendrick and Elliot S. Grossman find research and development to be the most important factor affecting interindustry differences in productivity growth. See Productivity in the United States: Trends and Cycles (Baltimore, MD, The Johns Hopkins Press, 1980). See also Zvi Griliches, "Issues in Assessing the Contribution of Research and Development to Productivity Growth," Bell Journal of Economics, Spring 1979, pp. 92-116.
2 Recent BLS work on this topic is summarized in Research and Development and Productivity Growth (Bureau of Labor Statistics, forthcoming).
3 The Bureau's work on the influence of physical capital on productivity is summarized in Jerome A. Mark and William H. Waldorf, "Multifactor productivity: a new BLS measure," Monthly Labor Review, December 1983, pp. 3-15. A detailed discussion of the effect of capital on productivity is contained in Trends in Multifactor Productivity, 1948-1981, Bulletin 2178 (Bureau of Labor Statistics, September 1983).
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