Shifts in the Nature of R&D efforts
An appealing alternative explanation of the productivity paradox, which is
unfortunately not considered by Jones (1995a, 1995b), is to look at possible shifts in
the nature of R&D efforts in relation to productivity growth. In discussing the
productivity paradox from this perspective, three explanations arise. These explanations
are:
1. R&D statistics (particularly in small firms) seem to capture only a part, and
sometimes even less than half of the total efforts attributed to technical progress,
which does not show up in official statistics (OECD 1992);
2. The nature of new technologies has changed in such a way that nowadays both
complementary technologies have to be developed and radical organizational
changes have to be made in order to gain a technology's full potential (David
1990);
3. R&D efforts may have become more and more devoted to product differentiation
than to (product or) process innovation, thus hardly affecting economic
growth but more so total consumers' welfare (Soete 1996 and Young 1998).
Testing for the applicability of these notions in a formal way is quite a challenge
(and Young 1998 has already partially done so). A model that may prove very
suitable is a specification à la Jones (1995b), which is enlarged by Quah and Keely
(1998) and Jones and Williams (1998)3
. Here however, we will continue by pointing
out which explanation of the above we find most attractive in explaining the
productivity paradox, while trying to assess its importance by means of several
economic indicators4
.