Estimating the Productivity of Research and Development: An Exploration of GMM Methods Using Data on French & United States Manufacturing Firms

A comparative study of the contribution of R&D to firm-level productivity in French and United States manufacturing firms in the 1980s is presented. The study uses two large panels of approximately 1000 manufacturing firms covering over half of all R&D spending in each country and focuses on the estimation and interpretation of the relationship between output growth and the growth of R&D investment in the presence of simultaneity and firm heterogeneity. We use GMM methods to control for both sources of estimation bias, and we find 1) overall, the contribution of R&D to sales productivity growth appears to have declined during the 1980s, and 2) the role of simultaneity bias is higher in the U.S. than in France, possibly reflecting the greater importance of liquidity constraints for R&D investment in that country.