Innovative Slowdown, Productivity Reversal?

Transcription

1 Innovave Slowdown, Producvy Reversal? Esmang he Impac of R&D on Technologcal Change Güner Lang* Unversy of Augsburg, Germany February 00 Absrac Movaed by he observed reversal n labor producvy growh snce he begnnngs of he nnees, hs paper s analyzng he relaonshp beween R&D expendures and producvy. Tme seres daa of he German manufacurng ndusry s used o esmae a varable cos funcon, wh he sock of knowledge beng modeled as a quasfx npu. The esmaes show ha he exraced yeld s non-consan over he observaon perod. Curren raes of reurn on own R&D are measured o be sgnfcanly lower han durng he sxes, and no sgns of a sgnfcan reversal are deeced. The long-erm elascy of producon coss wh respec o R&D reduced from 0.0 o jus -0.0, he elascy of labor demand from 0.0 o Snce he growh raes of real R&D were also declnng, he conrbuon of R&D o producvy growh s currenly sagnang a he lowes level snce 960. JEL classfcaon: D: Producon, Capal and Toal Facor Producvy, Capacy. O3: Innovaon and Invenon: Processes and Incenves Keywords: Technology, nnovaon, research and developmen, producvy * PD Dr. Güner Lang, Unversy of Augsburg, Deparmen of Economcs, D-8635 Augsburg, Germany, e- mal guener.lang@ww.un-augsburg.de.

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3 Inroducon In 999, Germany spen 7 bn on research and developmen (R&D), whch accouns for one hrd of he EU-wde fgure. When calculang he rao beween R&D expendures and GNP, only for Sweden a hgher share s found, hus confrmng he lead poson of Germany whn he European Unon. Publc sources conrbued o abou 35% of he fnancng, whch s modes even by worldwde sandards: Sgnfcanly lower values are found only for Japan. On he prvae sde, manufacurng s responsble for more han 90% of R&D spendng and can herefore be expeced as he moor of nnovaons (daa from Sferverband). Movaed by he mporan role of manufacurng, he curren paper s esmang he relaonshp beween prvae R&D expendures and producvy growh n hs secor. Increasng R&D effors should perhaps wh some lag (Grlches, 979) enhance he npu-oupu relaonshp and herefore producvy. As n conras o many oher hghlydeveloped counres, hs mporan ssue has no found wde neres n Germany (see e.g. Hall and Maresse, 995, for France, Wakeln, 00, for UK, Goo and Suzuk, 989, for Japan, or Hall, 993, for he US). As an mporan excepon, Harhoff (998) s analyzng he relaonshp beween R&D expendures and producvy on he frm level, fndng a srong posve role of R&D on labor producvy. A specfc focus of hs paper s on he me rend of R&D reurns and her conrbuon o producvy. Acually, echnologcal change s consdered he man source of producvy growh and o be he key varable for susanable macroeconomc growh (Solow, 957). Ths rases he queson wheher he observed producvy slowdown durng he sevenes (see e.g. Baley, 98; Grlches, 986) s he resul of slowng growh n R&D expendures, of lower yelds from he sock of knowledge capal bul up by R&D, or wheher he slowdown s no relaed o nnovave acves. As s well known, producvy growh may also be drven by organzaonal ssues as he degree of specalzaon beween frms, ncreasng economes of scale, or reduced X-neffcences - -

4 from opmzed frm-nernal srucures and enhanced ncenves for he employees. Any sagnaon of hese engnes would also resul n a producvy slowdown. The answer from he leraure on dsenanglng producvy change seems no o be clear. For example, Hall (993) sees srong evdence n favor of declnng raes of reurns on R&D. In conras, Scherer (993) s pronouncng a sngular negave effec of he olprce shock for producvy growh, esmang even ncreasng yelds of research expendures snce he eghes. For Germany, Harhoff (998) s observng a slgh ncrease n he rae of reurns on R&D durng he eghes. Flag and Sener (993) emphasze he role of economes of scale, measurng no endency for a slowdown of he nnovave dynamcs. Ths resul s no suppored by a recen paper from Flag and Romann (00), however, where a sgnfcan drop n he scale-adjused rae of echncal progress s presened. Facng he laes fgures from producvy change, he conrbuon of R&D for he observed urnaround s of specal neres. Acually, as Fgure shows, here are clear sgns for a hal of he producvy slowdown or even for a reversal. Take labor, for example, where he year-o-year growh rae has halved mmedaely afer he frs ol prce shock n 973/7. Sarng wh he mplemenaon of deregulaon measures a he begnnngs of he eghes, a weak recovery of labor producvy growh could be observed, whch ganed some speed afer he German unfcaon. Durng he las years, labor producvy was runnng a abou %, whch compares o jus 3% afer he frs ol prce shock. Smlarly, he annual change n oal facor producvy was declnng from abou.% o 0.8% n he md-sevenes. As n conras o labor producvy, hs growh rae was furher declnng durng he eghes, before a small recovery can be observed afer he unfcaon process. However, even from hs more pessmsc measure a sop n he process of producvy slowdown can be concluded. Suppor for hs nerpreaon can be found from he laes US daa, where Nordhaus (000) measures a srong rebound n labor producvy, wh new economy secors heavly conrbung o hs posve developmen. Naurally he queson arses, wheher hs reversal s due o hgher yelds from R&D, ncreasng R&D expendures, or wheher he sources are no relaed o nnovave acves. - -

5 Fgure : Tme Trends of Labor Producvy and Toal Facor Producvy n German Manufacurng Labor Producvy Toal Facor Producvy 7%.0% 6% 5%.5% % 3%.0% % 0.5% % 0% % Mean values of year-o-year changes n hour producvy and oal facor producvy (TFP), respecvely. The srucure of he paper s as follows. Secon ses ou he heorecal framework used o esmae he relaonshp beween R&D and echnologcal change. Secon 3 s provdng nformaon on he daa, before he resuls are presened n secon. The las secon res o connec he emprcal evdence wh economc polcy makng. The year-o-year growh rae of oal facor producvy s measured by he Tornqus dscree connuous Dvsa ndex, whch s gven by TFP y s, s, x, g ln ln. The varables y, x and s are represenng oupu quany, y x, npu quanes and cos share of npu, respecvely

6 The cos funcon framework and he consrucon of he sock of knowledge Followng Grlches (986), R&D expendures are used o creae a sock of knowledge, whch s assumed o be an npu lke labor or capal. When creang he sock of knowledge, one has o consder wo opposed effecs from he varable me (Grlches, 979): Frs, he nnovave effec from research and developmen may be appearng no mmedaely afer nvesng n research and developmen. I akes some me o generae new knowledge, and addonally he knowledge has o spread hroughou he economy before s effec can be measured. Ths process s known as dffuson. Second, older knowledge s becomng obsolee because of new nvenons. The subsuon of old knowledge by new nnovaons s known as decay. As n Popp (00), hs relaonshp beween he sock of knowledge K and curren as well as pas R&D expendures s modeled by an endogenous lag srucure. To be more specfc, he K values are calculaed as n he followng relaonshp: K s0 e s e s RD s () In equaon (), s capurng he decay of knowledge over me, whle s s represenng he number of perods before he curren perod. Because of he second world war, no daa before 98 on R&D s avalable, whch resrcs he maxmum lag perod o. Togeher wh he curren perod, 3 years of R&D are assumed o nfluence he sock of knowledge a any perod. The rae of dffuson s gven by he parameer. Boh - parameers and herefore he weghs are endogenous. When searchng for he mpac of research and developmen on producvy, no only he relaonshp beween K and R&D, bu also he yeld from he sock of knowledge has o be esmaed. To solve hs problem, a radonal cos funcon has been supple- - -

7 mened by he knowledge sock varable K, whch n urn s a funcon of pas and curren R&D. The resrced varable cos funcon can herefore be wren as C C y, w,, K RD, () where C s he cos of producon excep R&D expenses, y denoes oupu quany, w s a vecor of npu prces for varable npus, s a me rend represenng echnologcal change from sources oher han nernal R&D, and K s he sock of knowledge capal. The resrced cos funcon mplcly assumes ha frms are adjusng he levels of her varable npus o her cos-mnmzng values gven he quasfx value of K. Prncpally, would also possble o esmae he decson process on research on developmen and herefore on he sock of knowledge (see e.g. Morrson, 99, for an adjusmen process on physcal capal). However, wh he man focus on he relaonshp beween R&D and producvy, hs paper s followng he majory of emprcal sudes and only esmaes demand equaons for varable npus. Pung ogeher, he varable cos funcons allows for wo ypes of echnologcal change: auonomous echnologcal change, capured by, and self-nduced echnologcal change as a resul from own R&D expendures. Auonomous echnologcal change may orgnae from qualy ncreases of he varable npus or from publc research. Is conrbuon on oal facor producvy can be measured by he elascy C ln C. C descrbes he relave change n producon coss caused by he movemen from one perod o he nex one. If one s neresed n he conrbuon of auonomous echnologcal change on facorspecfc producves, he followng measures can be used: (3) C w,,3,. w x () s he elascy of npu wh respec o he me ndex. The long-run mpac of research and developmen on producon coss s calculaed by - 5 -

8 C K RD s RD, s K s RD. 0 s C (5) RD can be nerpreed as rae of reurn on R&D, snce measures he (long-run) percenage cos savngs from a one-percen ncrease n research expendures. To make he resuls comparable o sudes explanng he growh rae of labor producvy, he long-run elascy of labor demand on research and developmen s derved as follows: C K RD l s RD,. s 0 wl, K s RD s C wl, (6) l The ndex l s denfyng labor npu. RD are herefore long-run savngs of labor caused by ncreased research expendures, expressed as elascy value. Fnally, o denfy he oal conrbuon of he research expendures on producvy, he followng calculaon schedule s used: K, w, y,, K Cw, y,, K C w, y,, K C U. The nomnaor n (7) s he shadow value of a change n he sock of knowledge from K o K, gven ha he se of he oher relevan varables ake he values from he perod ( ). U K, esmaes he relave change n producon coss from he perod-operod change of he K -varable, wh posve values ndcang a cos advanage. Asde from he levels of w, y and, he resul from (7) s dependen on he yeld from he knowledge sock, and second on pas and curren nvesmens no research and developmen. To mplemen he oulned model for emprcal esmaon, a funconal form has o be provded for he varable cos funcon (). As n conras o many oher sudes on he mpac of R&D, no a Cobb-Douglas funconal form, bu a more flexble form s used o allow for complex relaonshps beween he npus and he oupu level. To be more specfc, he followng ranslog cos funcon s employed: (7) - 6 -

9 lnc ( w, y,, K ) a 0 j b ln y f ln K a j ln y 0 ln w ln w d0 f ln K a ln w j d b ln y c ln w d g ln w ln y ln K ln y e ln w Four varable npus, represened by labor, capal, energy and maeral, are used o descrbe he producon process. To beer explo he nformaon from he daa se, equaon (8) s esmaed ogeher wh he followng cos share funcons: (8) s ln C xw a a ln w C j j ln w j c ln y e g ln K,,3 (9) The relaonshp beween absolue coss and cos shares s generaed by applyng Shephard s Lemma on he varable cos funcon. Ths powerful procedure ncreases he number of observaons o he -fold, whou ncreasng he number of parameers o be esmaed. Boh auonomous echnologcal change, capured by, as well as he level of knowledge K are allowed o nfluence absolue coss C as well as he cos srucure, represened by he share equaons. In order o characerze a well-behaved echnology, he cos funcon has o mee ceran regulary condons: C mus be ncreasng n he npu prces and n he oupu quany, lnear homogenous n he npu prces, and concave wh regard o he npu prces (Chambers, 988, Chaper ). Lnear homogeney n npu prces and he symmery of he cos funcon are ensured by mposng he followng (usual) resrcons: a a j j j a 0 j a c 0 e 0 g 0 (0) As s well known from emprcal sudes, concavy n npu prces s ofen volaed, resulng n posve own-prce elasces of he npu quanes. To deal wh hs problem, one can eher use he Cholesky-facorzaon nroduced by Lau (978), or alerna

10 vely he egenvalue procedure (Talpaz e al., 989). The las-menoned s usng he fac ha all egenvalues of a negave-semdefne marx are non-posve. Therefore, by addng he non-lnear nequaly H Cw, y,, K 0 max eg ww, () concavy for a ceran se of exogenous varables can be ensured. In equaon (), H ww C w, y,, K s denong he Hesse marx of he cos funcon wh respec o npu prces. For emprcal realzaon, arhmec means of he exogenous varables were used, guaraneeng local concavy of he cos funcon. Global concavy was no mplemened, because he necessary parameer resrcons would rule ou any complemenary relaonshps beween he npus. The man advanage of a flexble funconal form,.e. he ably o represen a wde range of echnologes, would oherwse be deleed (Dewer and Wales, 987). Addve error erms, whch are assumed o be normal dsrbued and conemporaneously correlaed, are appended o he cos and he revenue equaons. To deermne he parameers of he cos funcon (8), he cos equaon and hree share funcons are esmaed jonly by maxmum lkelhood (for he lkelhood funcon see Greene, 000, Chaper 5.). The fourh cos share equaon has o be deleed, because he sum of he error erms from 3 share funcons are equal o he error erm of he fourh npu share. Oherwse he varance-covarance marx of he error erms would be sngular. The raes of decay and of dffuson are no esmaed drecly, bu by a raser search. Followng Popp (00), boh parameers are found by searchng for ha combnaon of and whch maxmzes he value of he maxmum lkelhood funcon. To carry ou hs raser search,. By searchng over he range 0, for boh and, he me srucure beween R&D and mpac on he producon echnology s endogenzed. s defned as and - 8 -

11 Descrpon of he Daa The model descrbed above s esmaed for Wes German manufacurng, whch s responsble for more han 90% of prvae research and developmen expendures n Germany. Indusry daa were aken merely from naonal accouns (Sassches Bundesam), provdng annual nformaon from 960 o 996. As oupu measure he producon value n consan prces s used. Wages are calculaed as oal expenses on labor dvded by he annual number of workng hours boh from employees and he self-employed. The r p p p, where r prce of capal s consruced as user cos of capal K I I p s he neres rae, s he rae of deprecaon, and p p s he change n he prce of I I nvesmen goods. Nomnal expenses for capal can be found by mulplyng p K wh he quany of capal employed, whch s measured by he ne capal sock n consan prces. Energy demand s par of a broadly defned maeral varable and no explcly shown a he naonal accouns. The coss of energy use are found by mulplyng he physcal demand for energy, whch s dsaggregaed no elecrcy, ol and coal demand (Sassches Bundesam, Seres ), wh curren wholesale prces. Expenses on maeral are correced by he nomnal energy coss as defned above. An mplc prce deflaor for maeral s calculaed on he bass of nomnal expenses and he value of he nermedae npu n consan prces. Nomnal R&D expenses for Wes German manufacurng are avalable back o he year 98 (Sferverband). To calculae real values, curren values are deflaed by he prce of labor. Ths specfc deflaor was chosen because of he domnance of labor expenses for R&D spendng: Even wh conservave assumpons, labor accouns for a Toal expenses on labor are defned as he sum of acually pad wages plus hypohecal wages for he labor npu from he self-employed, valued by he wage-rae of he employees

12 leas 60% of all research expenses. 3 When addonally consderng he above-average deprecaon raes of real capal used n he research laboraores, he employed deflaor seems o be more realsc han alernave measures lke he prce ndex for nvesmen goods (see e.g. Harhoff, 998) or he mplc prce deflaor of he value-added varable (Hall and Maresse, 995). As wll be dscussed laer, some resuls of he sudy are no nvaran agans he choce of he R&D deflaor. In order o correc for double counng, he varable npu facor labor s downward correced by R&D effors. Informaon abou absolue values of he varables and some sascal daa are gven n Table. All npu prce ndces are scaled o ake he value 00 n 980. Table : Descrpon of he daa se npu prces mean change* sandard devaon** labor capal energy maeral cos shares labor capal energy maeral oupu bn (980-prces) R&D*** bn (980-prces) * Arhmec mean of year-o-year change raes. ** Sandard devaon of year-o-year change raes. *** Frs year s Ths fgure s calculaed on he assumpon of average wages and work me for research personal. Because of he hgh qualfcaon of he research saff, he acual wage rae and herefore he acual labor cos share whn he R&D cos block s probably underesmaed

13 Emprcal resuls Parameer esmaes were obaned by maxmum lkelhood esmaon of he cos funcon (8) and hree facor share equaons (9). Consderng he mposed resrcons, 30 free parameers have o be deermned from 8 observaons. The fnal resul of hs numercal opmzaon s presened n he appendx of hs paper (Table A ). All regulary condons no mplemened by resrcons were checked by ex-pos ess, whch show ha he cos funcon s non-decreasng n oupu and non-decreasng n he npu prces. The wde majory of he parameer esmaes are found o be sascally sgnfcan. Furhermore, lkelhood-rao ess on smplfed model srucures were run o check for he sascal relevance of he flexble funconal form and he conrbuon of R&D. Ther resuls are presened n Table. As a man concluson from hese sascal ess, he use of a flexble funconal form s srongly suppored. Smplfed funconal relaonshps are herefore no suable o depc all relevan economc nformaon abou he employed echnology. Furhermore, he assumpon ha auonomous as well as R&D nduced echncal change are rrelevan can be rejeced, oo. Table : Lkelhood-rao-ess on smplfed model srucures Hypohess LR freedom 00. son degrees of Conclu- a) homohec echnology rejec ( c 0,, 3) b) homogenous n oupu rejec ( c 0,,3; b 0; d 0 ) c) no auonomous echncal change rejec ( d 0 0; d 0; d 0; e 0,,3; f 0 ) d) no mpac from R&D rejec ( f 0 0; f 0; g 0,, 3) e) consan reurns from R&D rejec ( f 0; g 0,, 3) LR as value of he lkelhood-rao sascs; gves he crcal values. - -

14 Fgure : Impac of R&D over Tme Decay Dffuson Medan Weghs Decay and dffuson calculaed as weghs (see equaon ()). e s s and e, respecvely. Mulplyng boh values produces he In Fgure, he esmaed raes of decay and dffuson as well as he weghs of lagged R&D for he sock of knowledge are presened. The esmaes ndcae szeable lags beween R&D expendures and her mpac on K, wh he medan beng measured a sx years. Ths resul seems o be n conras o Popp (00), who found he medan mpac a wo years afer paen gran. However, consderng lags beween R&D effors and he paen process, he dfference beween Popp s wo year esmae and he presen calculaons s no surprsng. Because of he focus of hs sudy on producvy, he mos mporan propery from he esmaed parameers s he ably o quanfy he relaonshp beween, R&D and producon coss. Fgure 3 shows he esmaes for auonomous echncal change, defned as elascy of producon coss wh respec o he rend varable. Economcally, hs measure s depcng he ably o acqure echnologcal knowledge creaed ousde he own research laboraores. As can be seen, he conrbuon of auonomous echnologcal change on oal facor producvy s exhbng a slgh ncrease durng he sxes, followed by a dramac declne lasng unl recenly. Takng absolue values, he progress - -

15 rae slumped from more han % per year o an nerval rangng from 0% o 0.3%. There are no sgns for a reversal of hs negave rend. Fgure 3 also shows wo paral demand elasces wh respec o auonomous echnologcal change, llusrang ha he dsaggregaon of s no unformly ranspored no he sngle npus. Labor, for example, s mrrorng hs me pah a a hgher level. In conras, he me srucure of energy demand s much more complex, recenly exhbng an upwards rend of auonomous echnologcal change. Fgure 3: The effec of auonomous echnologcal change on producvy.% Toal Coss l 3.0%.0%.0% Labor 0.9% 0.6% e 0.0% 3.0% % 0.3%.0% Energy 0.0% % Asde from auonomous progress, nernal research and developmen nvesmens are he second source of nnovave mprovemens. To see he full yelds of R&D, he long l run elasces of oal coss ( RD ) and labor demand ( RD ) wh respec o he research npu are calculaed. Boh measures, whch can be nerpreed as reurn on he creaed sock of knowledge, are presened n Fgure. As expeced, he mpac of research and developmen s producvy-ncreasng. Wha seems more mporan, however, s he me rend of he yelds: The producvy enhancng effec of addonal spendng for research and developmen s clearly decreasng. Ineresngly, hs dsspaon of he yelds from R&D sared n he sxes and herefore well before a producvy slowdown could be observed. For example, he long-run elascy of labor demand wh respec o R&D was shrnkng from abou 0.50 a he begnnngs of he sxes o abou 0.0 n 975. Afer a small recovery, whch lased from 980 o 990, hs declne has connued - 3 -

16 unl recenly (see Harhoff, 998, for a smlar me srucure durng 979 unl 989). Even more perssen appears he slump n RD, whch represens he long-run elascy of oal coss on R&D: The esmaons show a declne from abou 0.0 o values n he range beween 0.0 and 0.0. Wh some opmsc nerpreaon, ha downwards rend has slowed snce 980, and we may conclude ha he yelds are now sagnang a low levels. These endences as well as he absolue values are n lne wh he fndngs from Hall (993) for he US, who analyzed he me nerval from 96 o 990. Fgure : Long-run Rae of Reurns on Research and Developmen Toal Cos l RD RD Labor To derve he oal conrbuon of R&D on producvy, he flow of yelds from he knowledge sock has o be combned wh he level of he knowledge sock, whch depends on he hsorcal developmen of research expenses. Gven he parameer esmaes and he observed values of R&D, year-o-year mpac raes can be calculaed on he bass of equaon (7). The resuls of hese calculaons are presened n Fgure 5. As clearly can be seen, he declnng rae of reurn was no offse by ncreasng growh raes of K. On he conrary, frms decded o reduce he growh of (real) R&D expendures, whch ransmed wh some lag no declnng growh raes of he knowledge sock (see Table A n he appendx). Sarng n he early sxes, U K seadly declned over wo decades and reached he zero-lne n 98. Snce hen a very small recovery can be observed. Compared wh he former resuls on, he conrbuon from nernal R&D on producvy growh s somewha below he level from auonomous echnologcal change. - -

17 Fgure 5: U K Impac of he Change n he Knowledge Sock on Producon Coss 0.% 0.3% 0.% 0.% 0.0% % Arhmec means of year-o-year change raes. Pung he resuls from Fgure 3 and Fgure 5 ogeher, he concluson s ha he aggregae conrbuon of nnovave acves boh from nernal R&D as well as from auonomous sources s declnng. The observed reversal n raw producvy measures, as presened n he nroducon o hs paper, s herefore he resul from successful nernal opmzaon, no from a rebound of nnovave power. Whn he esmaed model, he man force of nernal opmzaon s he explong of economes of scale, whch are esmaed a abou 0.9. Enhanced managemen ables, especally more approprae specalzaon srucures beween he frms, may also be hdden n he ndusry-wde daa, however. How robus are he esmaes agans varaons n he daa or n he model seup? To fnd an emprcal answer on hs queson, a bundle of alernave specfcaons have been run. I urned ou ha he fndngs on auonomous echnologcal change, especally he srong downwards rend, s very robus. More sensve, however, are he resuls abou he raes of decay and dffuson as well as he resuls on he rae of reurn of R&D. For example, he descrbed declne of he yelds from R&D dsappears f one subsues he labor prce deflaor by he oupu prce ndex (whch exhbs sgnfcanly lower growh raes). Wha remans, however, s he downward rend of he oal effec of R&D on producvy, as depced n Fgure 5. The man concluson from before, ha he conrbuon from nnovaons s declnng, s herefore confrmed. Defned as elascy of he cos funcon wh respec o he oupu varable (Chambers, 988, 68 ff.). Values less han one ndcae ncreasng economes of scale

18 Fnally, seems o be worhwhle ha echnologcal change does no only affec he coss of producon, bu also he cos srucures of he frms. The parameers e and presened n Table 3, conan hs nformaon. Because of her predomnanly hgh sgnfcance levels, he hypohess of a Hck s neural echnologcal change has o be rejeced. Boh auonomous as well as R&D nduced echnologcal change appear as labor savng, whereas he use of capal as well as he use of maeral s suppored. Oppose sgns are found for he energy varable, wh a posve relaonshp beween research expendures and he energy share, whch s n conras o he negave sgn of he - varable. g, Table 3: Impac of echncal change on he cos srucure Auonomous echncal change Labor share Capal share Energy share Maeral share -0.00*** ** *** 0.005*** Research and Developmen *** 0.0*** *** 0.000*** Value of he paral dervave of he relevan cos share equaon wh respec o and o ln K, respecvely

19 Concluson Ths sudy has esmaed he mpac of research and developmen expendures on producvy dynamc, usng me-seres daa of Wes German manufacurng. R&D was found o be a sgnfcan deermnan of producvy, wh he exraced yeld beng nonconsan over me. As he mos neresng resul, curren raes of reurn on own R&D are esmaed o be sgnfcanly lower han durng he sxes. The long-erm elascy of producon coss wh respec o R&D declned from abou 0.0 o jus -0.0 or 0.0, he elascy of labor demand from abou 0.0 o abou 0.5. Snce he growh raes of real R&D were also decreasng, even reached zero durng he las decade, he conrbuon of R&D o producvy growh s sagnang a very low levels. Smlarly, auonomous echnologcal change from ousde he manufacurng secor s esmaed o be declnng snce 975. Durng he las years, s conrbuon o TFP growh s a modes 0%- 0.% annually. The observed reversal from he producvy slowdown, whch sared a he begnnngs of he nnees, s herefore caused by forces ousde he nnovave sysem, e.g. by an enhanced exploaon of economes of scale. Obvously, hese pessmsc resuls, especally hose on declnng yelds on research expendures, have mporan polcy mplcaons. Frs of all, because of he low yelds he governmen should be careful n smulang hgher research expendures. Any expanson of he paen rgh or he gran of research subsdes may resul n a msallocaon of resources. As a second concluson, should be consdered o redrec publc resources no hose areas whch are mporan for he observed producvy reversal. Namely low ransacon coss are he key owards opmzed vercal frm srucures. Hgher nvesmens no publc nfrasrucure wll probably suppor hs organzaonal challenge. And hrd, he engne producng yelds from R&D npus s possbly neher exogenous nor a black box. Possble measures o mprove he npu-oupu relaonshp, e.g. by an enhanced knowledge ransfer beween he publc and he prvae research saff, should be srenghened

20 References Baley, M. N. (98), The Producvy Growh Slowdown by Indusry, Brookngs Papers on Economc Acvy, pp Chambers, R. (988), Appled Producon Analyss: A Dual Approach, Cambrdge(US): Cambrdge Unversy Press. Dewer, W., Wales, T.J. (987), Flexble Funconal Forms and Global Curvaure Condons, Economerca 55, pp Flag, G., Romann, H. (00), Inpu Demand and he Shor- and Long-Run Employmen Thresholds: An Emprcal Analyss for he German Manufacurng Secor, German Economc Revew, Issue, pp Flag, G., Sener, V. (993), Searchng for he Producvy Slowdown : Some Surprsng Fndngs from Wes German Manufacurng, Revew of Economcs and Sascs 75, pp Goo, A, Suzuk, K. (989), R & D Capal, Rae of Reurn on R & D Invesmen and Spllover of R & D n Japanese Manufacurng Indusres, The Revew of Economcs and Sascs, Vol. 7, Number, pp Greene, W. (000),Economerc Analyss, h edon, London: Prence Hall. Grlches, Z. (979), Issues n Assessng he Conrbuon of Research and Developmen o Producvy Growh, Bell Journal of Economcs, pp Grlches, Z (986), Producvy, R & D and Basc Research a he Frm Level n he 970s, Amercan Economc Revew 76, pp. 5. Hall, B.H. (993), Indusral Research durng he 980s: Dd he Rae of Reurn Fall?, Brookngs Papers on Economc Acvy (Mcroeconomcs), pp Hall, B.H., Maresse, J. (995), Explorng he Relaonshp beween R&D and Producvy n French Manufacurng Frms, Journal of Economcs 65, pp Harhoff, D. (998), R&D and Producvy n German Manufacurng Frms, Economcs of Innovaon and New Technology 6, pp Lau, L. (978), Tesng and Imposng Monooncy, Convexy and Quas-Convexy Consrans, n: Fuss, M., McFadden, D. (eds.), Producon Economcs: A Dual Approach o Theory and Applcaons, Amserdam: Norh-Holland, pp Morrson, C.J. (99), Unravelng he Producvy Growh Slowdown n he U.S., Canada and Japan: The Effecs of Subequlbrum, Scale Economes and Markups, Revew of Economcs and Sascs 7, pp

21 Nordhaus, W.D. (000), Producvy Growh and he New Economy, Cowles Foundaon dscusson papers no. 8, Yale Unversy. Popp, D. C. (00), The Effec of New Technology on Energy Consumpon, Resource an Energy Economcs 30, pp Scherer, F.M. (993), Laggng Producvy Growh: Measuremen, Technology and Shock Effecs, Emprca 0, pp. 5-. Solow, R. M. (957), Techncal Progress and he Aggregae Producon Funcon, Revew of Economcs and Sascs 39, pp Sassches Bundesam, Seres, Seres 7, Seres 8. Sferverband, Sasken über Forschung und Enwcklung. Talpaz, H., Alexander, W. P., Shumway, C.R. (989), Esmaon of Sysems of Equaons Subjecs o Curvaure Consrans, Journal of Sascal Compuaon and Smulaon 3, pp. 0. Wakeln, K. (00), Producvy Growh and R&D Expendure n UK Manufacurng Frms, Research Polcy 30, pp

22 Appendx Table A : Parameer esmaes for he ranslog cos funcon (8) Parameer Esmae -sasc a ** 0 a *** a *** a *** 3 a b ** a *** a ** a *** a *** a *** a a *** a *** a *** a *** c ** c *** c ** c *** b *** d ** d *** d *** e *** e ** e *** e *** f ** f g *** g *** g *** g *** Number of observaons 8 Sandard errors for Maxmum Lkelhood from he nverse of he Hesse marx. *, ** and *** represen a sgnfcance level of 90%, 95% and 99%, respecvely (wo-sded). All calculaons were run by GAUSS

23 Table A : R&D Expenses and he Sock of Knowledge Real R&D Sock of Knowledge Arhmec means of year-o-year change raes (calculaed as dfference n logs). Table A 3: Own and Cross Prce Elasces of Inpu Demand Prce elascy of... labor capal energy maeral wh regard o prce ncrease of... labor -0.5 capal energy maeral Arhmec means for observaon perod (37 years). - -