Abstract: This paper estimates the social rate of return to research and development (R&D) in the energy manufacturing industry. Our model tries to quantify the positive contribution that lagged R&D has on total factor productivity (TFP) growth in the manufacturing of coal, petroleum products and nuclear fuel for a number of OECD countries. Using a panel of data from the OECD STAN database we are able to obtain results suggesting that R&D has a positive and significant rate of return that varies for each country.
► The social rate of return to R&D are positive and significant for most countries.
► The US and the UK have low rates of return.
► Italy and Germany have the highest rates of return.
by David Corderi and C.-Y. Cynthia Lin; both of the Department of Agricultural and Resource Economics, University of California at Davis, One Shields Avenue, Davis, CA 95616, United States; Tel.: +1 530 752 0824, Tel.: +1 530 400 1023.
A full free version of the paper available at http://www.des.ucdavis.edu/faculty/Lin/Corderi_Lin_STAN.pdf notes:
The United States and United Kingdom, the two leaders in terms of R&D spending and size of the energy sector, have low rates of return 5.4 and 3.2 percent respectively. We suggest two possible reasons for this fact. First, these countries are the leaders in the sense that they are closer to the technological frontier; hence we should expect a lower return given that these countries may be experiencing diminishing returns to R&D. Second, these countries may also generate significant international spillovers through trade-related technological diffusion which is not captured in their own estimation of social rate of return at the country level; as we argued before, this type of spillovers are not measured in our exercise.
France has a rate of return of 5.8 percent. Being the third largest country in terms of industry size and the fourth largest R&D spending country, an argument similar to the United States may apply in this case. Belgium and Canada have also low rates of return, 3.8 and 2.9 percent respectively.
Italy and Germany have the highest rates of return of the sample studied, 26 and 18 percent respectively. While these countries are comparatively in the low and mid ranges of R&D expenditures and industry size, it is possible that they are benefiting from international spillovers from countries such as United States or the United Kingdom.
Korea has a rate of return of 8.7 percent. This country is the fifth country in R&D expenditures and has the smallest size of the industry in the sample. The Nordic countries which have relatively small industry size present rates of return of 7.9 percent (Sweden) and 10 percent (Finland).
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Article in Press, Corrected Proof ; Available online March 10, 2011.
Keywords: Social rate of return to R&D; Energy; R&D