This article estimates a dynamic structural model of discrete Research and Development (R&D)investment and quantifies its cost and long-run benefit for German manufacturing firms. The model incorporates linkages between R&D choice, product and process innovations, and future productivity and profits. The long-run payoff to R&D is the proportional difference in expected firm value generated by the investment. It increases firm value by 6.7% for the median firm in high-tech industries but only 2.8% in low-tech industries. Simulations show that reductions in maintenance costs of innovation significantly raise investment rates and productivity, whereas reductions in startup costs have little effect.

Item Type:	Refereed Article
Keywords:	productivity, innovation, industry
Research Division:	Economics
Research Group:	Applied Economics
Research Field:	Industry Economics and Industrial Organisation
Objective Division:	Economic Framework
Objective Group:	Microeconomics
Objective Field:	Microeconomics not elsewhere classified
UTAS Author:	Fryges, H (Dr Helmut Fryges)
ID Code:	122281
Year Published:	2017
Web of Science® Times Cited:	5
Deposited By:	TSBE
Deposited On:	2017-11-08
Last Modified:	2018-05-24
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