R and D and Growth at the Industry Level

Although research and development is widely considered to be an important source of growth, relatively little is known about how its effects differ across industries. This is mainly because much research on the effect of R&D has used either cross-section or time-series data and the remainder has mostly looked at the effect of R&D on panels of firms. This paper constructs a heterogeneous dynamic panel data model of total factor productivity in the nineteen sectors of UK manufacturing between 1972 and 1992. The effect of R&D is found to vary significantly across industries in line with various industry characteristics. In particular, industries with high R&D elasticities tend to be those with higher capital to labour ratios, higher propensities to use intermediate goods from high R&D industries, higher openness to imports and lower levels of unionisation and lower ratios of R&D capital to physical capital.