Endogenous R&D elasticities of productivity functions and BERD bias: Explorations of functional coefficient regressions

Abstract

Macroeconomic productivity is modelled as a Cobb-Douglas function of private and public R&D stocks in recent literature. The slope parameters of a growth rate version may change over time and with circumstances. Using the method of functional-coefficient regression, we show that human capital, GDP (per worker), services and defence R&D (both % GDP), lags of domestic and foreign private and public R&D, and lagged labour-augmenting technical change, all in growth rates, change the elasticities of productivity. The result is a panel data set of regression coefficients representing elasticities of productivity. Eventually, the panel average of the productivity elasticities of domestic and foreign private R&D goes to constant values; elasticities of public R&D go down slightly. This may contribute to an explanation of the productivity slowdown and why private R&D has been expanded relative to public R&D in recent years.