Since the early 1960s, researchers have conducted empirical analyses of the impact of investment in R&D on productivity and productivity growth. The framework used by most researchers begins with a Solow-like (1957) model. A generalized version of this early model is, following Griliches (1979), discussed in this chapter.
A generalizable production function applicable to the ith firm, ith industry, ith sector, or the economy, can be written as:
Qi = Ai F(K, L, T)i,
where, as in all of the production functions discussed in this volume, Q represents output. This model is commonly referred to in the literature (see Griliches and Lichtenberg (1984)) as the R&D capital stock model. In equation (9.1), A is a neutral disembodied shift factor. That is, it is not written here specifically as a function of time, t, as in previous chapters because many applications of equation (9.1) are to cross-sectional data. The stock of physical capital and labor or human capital are K and L, respectively. The stock of technical capital available to the unit of observation, hereafter referred to as the firm for simplicity, is represented as T. T in turn can be written in terms of the alternative sources upon which the firm, acquires technical knowledge, as illustrated in Figure 8.2.
Although this extended model in equation (9.2) has most often been applied in an abbreviated form primarily because of data limitations, its general representation includes four sources of technical knowledge, each corresponding conceptually to sources illustrated in Figure 8.2. Following Charles River Associates (1981) and Tassey (1982):
Ti = G(OTi, PTi, GTi, IT),
where OTi is the ith firm’s own or self-financed stock of technical knowledge, PTi is the ith firm’s purchased stock of technical knowledge, GTi is the ith firm’s government-financed stock of technical knowledge, and IT is the infrastructure