Assessing the Contribution of R&D to Total Factor

Productivity --- A Bayesian Approach

Georges Bresson, Cheng Hsiao

and Alain Pirotte

I. Introduction

• Economic growth depends on productivity growth

• Productivity increase depends on R&D and capital inputs

The decision to invest is made under considerable uncertainty. Firms do not really know for sure what the underlying demand for the output of their R&D is, nor do they have much idea how productive the research will be. The realized rate of return may differ substantially from that which the firm contemplated at the time that it made the investment.

• Firms have varying structures and management. Technology different across industries. So are the return.

Subperiod Estimates