Productivity growth and R&D expenditure in UK manufacturing firms

This paper analyses the relationship between productivity growth and R&D expenditure. A Cobb-Douglas function including R&D intensity is estimated for 170 UK firms. A positive and significant role is found for the firm's own R&D expenditure in influencing productivity growth. Separating the firms according to their innovation histories, the rate of return to R&D is much higher for innovative than non-innovative firms. Firms located in sectors that are defined as net users of innovations also appear to have a high rate of return on R&D, both their own and that of other firms in their sector. The innovation history of both the firm and the sector appear to be important in influencing the rate of return to R&D. (C) 2001 Elsevier Science B.V. All rights reserved.