Further considerations on the link between adjustment costs and the productivity of R&D investment: evidence for Spain

Abstract

This article constructs a dynamic model to estimate the impact of adjustment costs on the productivity of investment in R&D. In order to take into account the possible endogeneity of adjustment costs, the model is estimated by means of instrumental variables (IV), using a panel of Spanish companies. The results show that the elasticity of the productivity of R&D investment with regard to adjustment costs is high, with a value close to −1 (−0.96). This confirms that it is essential to include adjustment costs in the empirical analysis of R&D productivity, as suggested by Jones and Williams (1998) and Comin (2002, 2004).

Acknowledgements

Authors are grateful to funding received from research projects v074/2006 and SEJ2006–04444/ECON coming from Comunidad Autonoma de Madrid and Education and Science Ministry. A previous version of this paper was published as a working paper in FUNCAS (Fundación de las Cajas de Ahorros).

Notes

¹ In Spain, approximately 60% of R&D expenditure is constituted by personnel costs, 25% by capital expenditure and the remaining 15% by other current expenditure (INE, several years). Thus, R is a mixture of technological capital (for example, laboratories) and of the know-how of scientists and engineers involved in R&D tasks.