R&D Resources Allocation and Productivity Growth in the OECD Manufacturing Industries

This study is intended to underline the importance of the role played by the cross-industry allocation of R&D resources, as indicated by several indices measuring R&D inequality, within the manufacturing industries of each country, and how it determines cross-country productivity growth. In other words, the main debate is whether national R&D policies for promoting productivity growth should be focused within a narrow range or spread across a wide range of industries. We also divide the allocation modes of R&D resources into research-oriented and development-oriented types, to highlight the role played by the differences in the properties of R&D activities for each industry. As for the estimation method, we take into account the phenomenon with group-wise heterogeneities, serial correlations, and the correlation between pair-wise country comparisons in our sample. We employ the fixed-effect panel data model with cross-sectional dependence, drawing on the panel data from 11 Organization for Economic Cooperation and Development (OECD) countries for the period from 1981-2000. When the other variables are controlled, we find that the effect of R&D inequality on productivity growth is significantly positive and the coefficient of its squared term is negative. Moreover, the impact of R&D intensity depends on the degree of R&D inequality. This lends support to the notion that concentrating suitable R&D resources on a few industries is an important factor in encouraging cross-country productivity growth. Specialization of R&D activities in certain relevant industries brings better opportunities for promoting productivity performance because of reaching sufficient levels of scale and accumulation of experience. Furthermore, the results from separate samples reflect the fact that development-oriented manufacturing industries can enjoy higher productivity growth from the specification policy. However, for the research-oriented industries the case is relatively weak. JEL: O30, O40, O57, L60