Exploring the relationship between R&D and productivity in French manufacturing firms

Using a newly available dataset on the R&D investment of individual French manufacturing firms for the 1980s, we replicate and update a series of studies on French R&D and productivity at the firm level from the 1970s, and evaluate the robustness of methods currently used to measure the private returns to R&D. Our main findings are: Having a longer history of R&D expenditures helps improve the quality of the R&D elasticity estimates, but the choice of depreciation rate for R&D capital makes little difference. The correction for double-counting of R&D expenditures in capital and labor is important and may be interpreted under certain conditions as converting a measured ‘excess’ rate of return to a total rate of return to R&D. We show that the direct production function approach to measure returns to R&D capital is preferred on several grounds over the rate of return variation used in the past. Finally, as in the 1970s, the productivity of R&D capital for French manufacturing firms in the 1980s is positive; how strong and robust depends on whether we control for potential industry and firm effects.