Capital, Labour, Materials and Additional R&D Investment in Japan. The Issue of (Double-) Counting

R&D components are investigated in dynamic factor demand models, using a pooled data set. Models where information on R&D is (double or ) wrongly counted and (once or) correctly counted are compared by GMM estimates, (non-)nested GMM tests and residual analyses. The results indicate that R&D contributes significantly to the explanation of capital, labour, energy and materials demand in the Japanese manufacturing industry. A double counting of R&D is even preferred to not incorporating R&D as a separate production factor. Furthermore, R&D turns out to be a heterogeneous production factor with production potentials differing among its components.