Short and Long-Run Returns to Agricultural R&D in South Africa, or Will the Real Rate of Return Please Stand Up?

15 Pages Posted: 3 Oct 2001 Last revised: 14 Nov 2015

See all articles by David Schimmelpfennig

David Schimmelpfennig

Science & Technology PPQ; Economic Research Service (ERS); USDA Economic Research Service

Colin Thirtle

Imperial College London - TH Huxley School of Environment, Earth Sciences & Engineering; University of Pretoria - Department of Agricultural Economics, Extension and Rural Development

Johan van Zyl

University of Pretoria; World Bank

Carlos Arnade

U.S. Department of Agriculture (USDA) - Economic Research Service (ERS) - Market & Trade Economics Division

Yougesh Khatri

International Monetary Fund (IMF)

Date Written: 2000

Abstract

This paper briefly presents the results of a total factor productivity (TFP) study of South African commercial agriculture, for 1947-1997, and illustrates some potential pitfalls in rate of return to research (ROR) calculations. The lag between R&D and TFP is analyzed and found to be only 9 years, with a pronounced negative skew, reflecting the adaptive focus of the South African system. The two-stage approach gives a massive ROR of 170%. The predetermined lag parameters are then used in modeling the knowledge stock, to refine the estimates of the ROR from short-and long-run dual profit functions. In the short run, with the capital inputs treated as fixed, the ROR is a more reasonable 44%. In the long run, with adjustment of the capital stocks, it rises to 113%, which would reflect the fact that new technology is embodied in the capital items. However, the long-run model raises a new problem since capital stock adjustment takes 11 years, 2 years longer than the lag between R&D and TFP. If this is assumed to be the correct lag, the ROR falls to 58%, a best estimate. The paper draws attention to the possible sensitivity of rate of return calculations to assumed lag structure, particularly when the lag between changes in R&D and TFP is skewed.

Keywords: South Africa, TFP, Returns to agricultural R&D, Profit function

Suggested Citation

Schimmelpfennig, David and Thirtle, Colin and van Zyl, Johan and Arnade, Carlos and Khatri, Yougesh, Short and Long-Run Returns to Agricultural R&D in South Africa, or Will the Real Rate of Return Please Stand Up? (2000). Agricultural Economics, Vol. 23, No. 1, June 2000, Available at SSRN: https://ssrn.com/abstract=250081

David Schimmelpfennig (Contact Author)

Science & Technology PPQ ( email )

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Economic Research Service (ERS) ( email )

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USDA Economic Research Service ( email )

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Colin Thirtle

Imperial College London - TH Huxley School of Environment, Earth Sciences & Engineering ( email )

Prince Consort Road
London, SW7 2BP
United Kingdom

University of Pretoria - Department of Agricultural Economics, Extension and Rural Development

Pretoria 0002
South Africa

Johan Van Zyl

University of Pretoria ( email )

Physical Address Economic and Management Sciences
Pretoria, Gauteng 0002
South Africa

World Bank

1818 H Street, N.W.
Washington, DC 20433
United States

Carlos Arnade

U.S. Department of Agriculture (USDA) - Economic Research Service (ERS) - Market & Trade Economics Division ( email )

Washington, DC
United States

Yougesh Khatri

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

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