A new method for constructing R&D capital stocks is proposed and tested. Following Schumpeter, the development of R&D capital stocks is modelled as a process of creative destruction. Newly generated knowledge is assumed not only to add to the existing R&D capital stocks but also, by displacing old knowledge, to destroy part of that capital. This is in stark contrast to the perpetual inventory method, which postulates a constant rate of depreciation. We compare both methods by estimating the impact of R&D and spillovers on output of 9 industries in 12 OECD countries, and find that the new approach leads to more sensible and robust results.
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Document Type: Research Article
Faculty of Economics and Management Studies, European University Viadrina, 15230 Frankfurt(Oder), Germany,Department of Economics and Institute for East European Studies, Free University Berlin, Germany
Faculty of Economics and Management Studies, European University Viadrina, 15230 Frankfurt(Oder), Germany,DIW Berlin, Germany
Publication date: 2007-02-01
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