FutureTech Seminar: The Rising Returns to R&D

Is research productivity declining? This paper uses micro-data from the US Census Bureau to explore the relationship between R&D and productivity in the manufacturing sector from 1976 to 2018. We find that the output elasticity and the marginal returns to R&D have risen sharply. Exploring factors affecting returns, we conclude that obsolescence rates on R&D stocks must have risen. Using a novel estimation approach, we find consistent evidence of sharply rising technological rivalry. These findings suggest that R&D has become more effective for firm productivity and rendering rivals’ technologies obsolete, increasing returns to innovation but perhaps selecting more transient innovations.