Effective R&D capital and total factor productivity: Evidence using spatial panel data models

It is widely accepted that R&D investment improves technological progress. The R&D capital that boosts a firm's production efficiency has various sources. This paper uses "effective" R&D capital, which represents not only a firm's internal R&D input but also the benefit derived from R&D collaboration and accessible knowledge capital, to empirically examine its effects on a firm's productivity. Accounting for technological distance and the endogeneity problem of weights matrices, we use spatial panel data models to estimate the return of R&D capital within the framework of the production function. We estimate the production function using the firm-year data of Shanghai technological enterprises from 2009 to 2017. The results show positive, significant relationships between each element of "effective" R&D capital and total-factor productivity (TFP). Knowledge spillovers have greater impacts on a firm's TFP than its internal R&D input and R&D collaboration. The contribution of R&D collaboration to TFP is less than that of internal R&D, indicating that R&D collaboration is not fully internalized. The results imply that a better environment for R&D collaboration and technology exchange is needed.