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This paper examines the relationship between research and development expenditures and total factor productivity using establishment level (or micro) data. The confidential data are taken from the U.S. Bureau of the Census Annual Survey of Manufacturers and other Census surveys. Several measures of total factor productivity are considered as are several variables that proxy for technical knowledge. The latter include research and development expenditures by the firm, the accumulated research expenditures of the industry, and new equipment purchases. We find that there is a statistically significant relationship among above measures of technical expertise and a broad measure of total factor productivity.

Measuring total factor productivity, technical change and the rate of returns to research and development