NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

R&D, Investment and Industry Dynamics

Saul Lach, Rafael Rob

NBER Working Paper No. 4060
Issued in April 1992
NBER Program(s):   PR

We present a model of industry evolution where the dynamics are driven by a process of endogenous innovations, followed by subsequent embodiments in physical capital. Traditionally, the only distinction between R&D and physical investment was one of labeling: the first process accumulates an intangible stock (knowledge) while the second accumulates physical capital; both stocks affect output in a symmetric fashion. We argue that the story is not that simple, and there is more to it than differences in the object of accumulation. Our model stresses the causal relationship between past R&D expenditures and current investments in machinery and equipment. This causality pattern, which is supported by the data, also explains the observed higher volatility of physical investment (relative to R&D expenditures).

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Document Object Identifier (DOI): 10.3386/w4060

Published:

  • Journal of Economic Management and Strategy, vol. 5, no. 2, June 1996, pp. 217-249. ,
  • Saul Lach & Rafael Rob, 1996. "R&D, Investment, and Industry Dynamics," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 5(2), pages 217-249, 06.

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