Dynamic Factor Demand Models, Productivity Measurement, and Rates of Return: Theory and an Empirical Application to the U.S. Bell System

Prucha and Nadiri (1982,1986,1988) introduced a methodology to estimate systems of dynamic factor demand that allows for considerable flexibility in both the choice of the functional form of the technology and the expectation formation process. This paper applies this methodology to estimate the production structure, and the demand for labor, materials, capital and R&D by the U.S. Bell System. The paper provides estimates for short-, intermediate- and long-run price and output elasticities of the inputs, as well as estimates on the rate of return on capital and R&D. The paper also discusses the issue of the measurement of technical change if the firm is in temporary rather than long-run equilibrium and the technology is not assumed to be linear homogeneous The paper provides estimates for input and output based technical change as well as for returns to scale. Furthermore, the paper gives a decomposition of the traditional measure of total factor productivity growth.

Comparison and Analysis of Productivity Growth and R&D Investment in theElectrical Machinery Industries of the United States and Japan

This paper presents a comparative analysis of productivity growth in the U.S. and Japanese electrical machinery industries in the postwar period. This industry has experienced rapid growth in output and productivity and high rates of capital formation in both countries. A substantial amount of R&D resources of the total manufacturing sectors in both countries is concentrated In the electrical machinery industry. Also, this industry has an active export orientation in both countries. The analysis of the paper is based on dynamic factor demand models describing the production structure and the behavior of factor inputs as well as the determinants of productivity growth in the U.S. and Japanese electrical machinery industry. The analysis shows that the production structure of the industry in both countries is characterized by increasing returns to scale; the factors of production do respond to changes in factor prices; and the existence of a pattern of substitution and complementarity among the inputs. The main sources of productivity growth are: growth in materials; technical change; and capital accumulation. R&D expenditures have also contributed significantly to growth of labor and productivity while the most important source of total factor productivity in this industry for both countries has been the scale effect followed by changes in technical progress.

R&D, Production Structure, and Productivity Growth in the U.S., Japaneseand German Manufacturing Sectors

The paper analyzes the production structure and the demand for inputs in three major industrialized countries, the U.S., Japan and Germany. A dynamic factor demand model with two variable inputs (labor and energy)and two quasi-fixed inputs (capital and R&D) is derived directly from an intertemporal cost-minimization problem formulated in discrete time. Adjustment costs are explicitly specified. The model is estimated for the manufacturing sector of the three countries using annual data from 1965 to 1977. Particular attention is given to the role of R&D. For all countries the rate of return on R&D is found to be higher than that on capital. Their respective magnitudes are similar across countries.We find considerable differences in factor demand schedules; we also find that for all countries the speed of adjustment for capital is higher than that of R&D. Adjustment costs are of importance in the demand equations for capital and R&D, but play a minor role in the decomposition of total factor productivity growth.

A Spatial Cliff-Ord-type Model with Heteroskedastic Innovations: Small and Large Sample Results

In this paper we specify a linear Cliff and Ord-type spatial model. The model allows for spatial lags in the dependent variable, the exogenous variables, and disturbances. The innovations in the disturbance process are assumed to be heteroskedastic with an unknown form. We formulate a multi-step GMM/IV type estimation procedure for the parameters of the model. We then establish the limiting distribution of our suggested estimators, and give consistent estimators for their asymptotic variance covariance matrices, utilizing results given in Kelejian and Prucha (2007b). Monte Carlo results are given which suggest that the derived large sample distribution provides a good approximation to the actual small sample distribution of our estimators.

COMPARISON AND ANALYSIS OF PRODUCTIVITY GROWTH AND R&D INVESTMENT IN THE ELECTRICAL MACHINERY INDUSTRIES OF THE UNITED STATES AND JAPAN

capital formation ; research and development ; electrical industry ; growth rate ; productivity