Keywords: Social rate of return, research and development, endogenous growth
Abstract: A large, empirical literature reports estimates of the rate of return
to R&D ranging from 30 percent to over 100 percent, supporting the
notion that there is too little private investment in research. This
conclusion is challenged by the new growth theory. We derive
analytically the relationship between the social rate of return to R&D
and the coefficient estimates of the empirical literature. We show
that these estimates represent a lower bound on the true social rate
of return. Using a conservative estimate of the rate of return to R&D
of about 30 percent, optimal R&D investment is at least four times
larger than actual investment.
Full paper (111 KB PDF)
| Full paper (118 KB Postscript)
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Last update: July 16, 1997