The Rising Returns to R&D: Ideas Are Not Getting Harder to Find
May 2025
Working Paper Number:
CES-25-29
Abstract
R&D investment has grown robustly, yet aggregate productivity growth has stagnated. Is this because 'ideas are getting harder to find'? This paper uses micro-data from the US Census Bureau to explore the relationship between R&D and productivity in the manufacturing sector from 1976 to 2018. We find that both the elasticity of output (TFP) with respect to R&D and the marginal returns to R&D have risen sharply. Exploring factors affecting returns, we conclude that R&D obsolescence rates must have risen. Using a novel estimation approach, we find consistent evidence of sharply rising technological rivalry. These findings suggest that R&D has become more effective at finding productivity-enhancing ideas but these ideas may also render rivals' technologies obsolete, making innovations more transient.
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profitability,
investment,
productive,
economist,
manufacturing,
industrial,
productivity growth,
technology,
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technological,
invention,
sector,
factor productivity,
productivity estimates,
innovation,
expenditure,
investment productivity,
depreciation,
patent,
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National Science Foundation,
Ordinary Least Squares,
Total Factor Productivity,
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Bureau of Economic Analysis,
Federal Reserve Bank,
Current Population Survey,
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Survey of Industrial Research and Development,
Alfred P Sloan Foundation,
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Business Research and Development and Innovation Survey,
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