The Determinants of Industrial R&D: A Funds Flow Simultaneous Equation Approach

7 Pages Posted: 11 Mar 2015

Date Written: March 9, 2015

Abstract

In this paper a general flow of funds model explain­ing aggregate R&D investment behaviour along the lines established initially by Dhrymes and Kurtz (1967) is developed and estimated using company level data. The approach gener­alizes a number of previous models by allowing for simulta­neous interaction between alternative uses of the firm's invest­ment funds and between the sources and uses of investment funds. Three key conclusions from the estimation of the system emerge: (a) although previous models have often recognized the importance of internal funds and the unimportance of external financing for R&D, this is the first model to appear that quantifies both phenomena; (b) although some previous studies using U.S. data have concluded that R&D expenditures may lower the marginal returns on capital outlays, our results show no such effects; (c) consistent with recent studies, no evidence of crowding out of private expenditures by government ex­penditures could be found.

Keywords: R&D determinants; funds flows; simultaneous equations

Suggested Citation

Switzer, Lorne, The Determinants of Industrial R&D: A Funds Flow Simultaneous Equation Approach (March 9, 2015). Review of Economics and Statistics, Vol. 66, No. 1, 1984, Available at SSRN: https://ssrn.com/abstract=2575890

Lorne Switzer (Contact Author)

Concordia University, Quebec ( email )

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