Productivity Growth, Environmental Regulations and the Composition of R & D

The average annual rate of productivity growth in the United States has fallen since the-1960s. One factor often cited for this trend is the slowdown in the level of R&D. In considering this factor, many researchers have examined the correlation productivity growth and R&D spending and found that it was positive through 1960s but near zero in the 1970s. This latter result has raised the question as to the productivity of R&D has collapsed. Evidence is presented in this article that collapse of R&D in empirical productivity equations is conceptually misleading because significant portion of R&D was directed in the 1970s toward compliance with environmental. These expenditures appear to be negatively related to measured productivity.