R&D Productivity and the Spillover Effects of High-Tech Industry on the Traditional Manufacturing Sector: The Case of Taiwan

This study sets out to estimate the impact of R&D on productivity within the private sector, with further analysis of the different impacts of R&D within high-tech and traditional manufacturing firms. We also attempt to examine the spillover effects from R&D investment in the high-tech sector on productivity growth within the traditional industries. Using a sample of 136 large manufacturing firms during the period 1994-2000, we develop an extended version of the Cobb-Douglas production function model, and our findings suggest that Taiwan's R&D investment had a significant impact on firm productivity growth, with output elasticity standing at around 0.18. When the sample is divided into high-tech and traditional firms, the R&D output elasticity in high-tech firms is significantly greater than that found in traditional firms. In addition, the average rate of return in high-tech firms is much greater than that estimated for other industries. Besides, our empirical results show that, although significant, the impact of R&D investment from the high-tech sector, on the productivity growth of traditional firms, is rather limited. Copyright 2004 Blackwell Publishing Ltd.

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