R&D Capital and the Idea Production Function

RePEc Short ID: pgr106
ORCID iD: 0000-0003-2222-1691

Growiec, Jakub; McAdam, Peter; dup Muck, Jakub

doi:10.18651/RWP2023-05

Working Paper

R&D Capital and the Idea Production Function

Abstract: We supplement the “Idea Production Function” (IPF), whereby research and development (R&D) activity leads to growth, with measures of R&D capital. We construct the R&D capital stock in the United States and estimate the IPF with patent applications as R&D output, allowing for a flexible treatment of R&D productivity (over 1968–2019). The estimated substitution elasticity between R&D inputs is 0.7−0.8, which suggests that R&D capital is an essential factor in producing ideas and complementary to R&D labor. We identify a positive trend in R&D labor productivity (roughly 1 percent) and a cyclical variation of R&D capital productivity. Rather than “ideas getting harder to find,” the R&D capital needed to find them has become scarce.

Keywords: macroeconomics; Idea Production Function (IPF); R&D capital;

JEL Classification: O30; O40; O47;

https://doi.org/10.18651/RWP2023-05