Endogenous R&D Elasticities of Productivity Functions and BERD Bias: Explorations of Functional Coefficient Regressions for 21 Rich Countries

Macroeconomic productivity is modeled as a Cobb–Douglas function of private and public R&D stocks in the recent literature. The slope parameters of a growth rate version may differ between countries and change over time and with circumstances. Using the method of functional coefficient regression, we show that human capital, GDP (per worker), services and defense R&D (both % GDP), lags of domestic and foreign private and public R&D, and lagged labor-augmenting technical change, all in growth rates, change the elasticities of productivity. The result is a panel dataset of regression coefficients representing elasticities of productivity for 21 rich countries. Eventually, the panel average of the productivity elasticities of domestic and foreign private R&D goes to constant values; elasticities of domestic public R&D go down slightly, whereas elasticities of foreign public R&D go up. This may contribute to an explanation of the productivity slowdown (mitigated by foreign public R&D) and why private R&D has been expanded relative to public R&D in recent years. Public R&D growth is associated with higher elasticities of domestic private and public R&D and lower ones of foreign private and public R&D and, therefore, offers a policy perspective.