NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Depreciation of Business R&D Capital

Wendy C.Y. Li, Bronwyn H. Hall

NBER Working Paper No. 22473
Issued in July 2016, Revised in January 2018
NBER Program(s):Economic Fluctuations and Growth, Industrial Organization, Productivity, Innovation, and Entrepreneurship

We develop a forward‐looking profit model to estimate the depreciation rates of business R&D capital. By using data from BEA and NSF between 1987 and 2007, and the newly developed model, we estimate both constant and time‐varying industry‐specific R&D depreciation rates. The results comprise a set of R&D depreciation rates for major U.S. high-tech industries. They align with the main conclusions from recent studies that the rates are in general higher than the traditionally assumed 15 percent and vary across industries. The relative ranking of the constant R&D depreciation rates among industries is consistent with industry observations and the industry‐specific time‐varying rates are informative about the dynamics of technological change and the levels of competition across industries. Lastly, we also present a cross‐country comparison of the R&D depreciation rates between the U.S. and Japan, and find that the results reflect the relative technological competitiveness in key industries.

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Document Object Identifier (DOI): 10.3386/w22473

Forthcoming in the Review of Income and Wealth

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