Measuring the Social Return to R&D
20 Pages Posted: 12 May 1997
Date Written: February 1997
A large empirical literature reports estimates of the rate of return to R&D ranging from 30% to over 100%, 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%, optimal R&D investment is at least four times larger than actual investment.
JEL Classification: O32, O41
Suggested Citation: Suggested Citation