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NATIONAL BUREAU OF ECONOMIC RESEARCH

NBER Publications by Helmut Fryges

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August 2013Estimating Dynamic R&D Demand: An Analysis of Costs and Long-Run Benefits
with Bettina Peters, Mark J. Roberts, Van Anh Vuong: w19374
This paper estimates a dynamic structural model of discrete R&D investment and quantifies its cost and long-run benefit for German manufacturing firms. The dynamic model incorporates linkages between the firm's R&D choice, product and process innovations, and future productivity and profits. The long- run payoff to R&D is measured as the proportional difference in expected firm value generated by the R&D investment. It increases firm value by 6.7 percent for the median firm in high-tech manufacturing industries but only 2.8 percent in low-tech industries. Simulations show that reductions in maintence costs of innovation significantly raise investment rates and productivity while reductions in startup costs have little effect.

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