Working Paper: NBER ID: w1238
Authors: Jeffrey I. Bernstein; M. Ishaq Nadiri
Abstract: In this paper we have developed a dynamic analysis of a firm under-taking research and development (R&D) investment, physical capital accumulation and utilization, along with labor requirement decisions. Empirical work has found that there are significant costs to develop knowledge. Consequently, R&D capital is treated as a quasi-fixed factor, along with the traditional physical capital stock. A number of empirically relevant implications arise from the analysis. It is shown that along the dynamic path as the R&D intensity of physical capital increases, knowledge per worker rises and the utilization rate of physical capital decreases. We distinguish between the intertemporal movement of the firm,and the response to unanticipated changes in demand and cost conditions. An increase in product demand causes the firm to increase both the R&D growth rate and the labor intensity of R&D capital. Contrary to a viewpoint held by many,the R&D investment does not displace labor. Finally, our model provides a framework to justify the empirically observed direct relationship between the physical capital growth and utilization rates.
Keywords: Research and Development; Capital Utilization; Labor Requirements; Dynamic Analysis
JEL Codes: O32; D24
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| R&D intensity (O32) | knowledge per worker (J24) |
| R&D intensity (O32) | physical capital utilization (E22) |
| product demand (R22) | R&D growth rate (O39) |
| product demand (R22) | labor intensity of R&D capital (J24) |
| growth rates of physical capital (O40) | utilization rates (L97) |