R and D and Productivity at the Industry Level: Is There Still a Relationship?

This paper is a re-examination of the relationship between research and development (R&D) activity and total factor productivity (TFP) at the industry level during the period extending from the early 1960's to the mid-1970's. The data base consists of NSF data on applied R&D expenditures by product class, matched to TFP indices derived from the detailed Census-Penn-SRI manufacturing data file. A hypothesis suggested by previous research on the R&D-productivity relationship is that, due, perhaps, to the depletion of scientific opportunities, the "potency'' of R&D as a source of technological progress has declined in recent years. Our findings indicate, however, that the relationship between an industry's R&D-intensity and its productivity growth did not disappear; if anything, the relationship was stronger in recent years. The overall deceleration in productivity in recent years has affected R&D-intensive industries, but to a lesser extent than it has other industries. What cannot be found in the data is strong evidence of the differential effects of the slowdown in R&D itself. The time series appear to be too noisy and the period too short to detect what the major consequences of the retardation in the growth of R&D expenditures may yet turn out to be.