R&D has been growing since there are statistics, both in absolute terms and relative to value added. However productivity growth and patents have not risen accordingly over the last decades. The economic debate on the reasons and implications has been going on for years, pretty much since Robert Solow famously said in 1987 that “You can see the computer age everywhere but in the productivity statistics.” The debate on innovation and productivity has been prominent in this blog since its very beginnings. Are ideas getting harder to find?

A new working paper¹ challenges the hypothesis that research productivity has substantially declined. The analysis presented shows that it is rising obsolescence which contributes to the gap between R&D growth and productivity growth. Higher obsolescence means that innovations are shorter lived on average, boosting firm revenue for a time, but doing little to generate a sustained increase in aggregate productivity:

R&D investment has grown robustly, yet aggregate productivity growth has stagnated. Is this because “ideas are getting harder to find”? This paper uses micro-data from the US Census Bureau to explore the relationship between R&D and productivity in the manufacturing sector from 1976 to 2018. We find that both the elasticity of output (TFP) with respect to R&D and the marginal returns to R&D have risen sharply. Exploring factors affecting returns, we conclude that R&D obsolescence rates must have risen. Using a novel estimation approach, we find consistent evidence of sharply rising technological rivalry and obsolescence. These findings suggest that R&D has become more effective at finding productivity-enhancing ideas, but these ideas may also render rivals’ technologies obsolete, making innovations more transient. Because of obsolescence, rising R&D does not necessarily mean rising aggregate productivity growth.

The debate will go on. You can bet on it.

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(1) Ando, Yoshiki, James E. Bessen, and Xiupeng Wang. ‘The Rising Returns to R&D: Ideas Are Not Getting Harder to Find’. SSRN Scholarly Paper No. 5242171. Social Science Research Network, 5 May 2025. https://doi.org/10.2139/ssrn.5242171.

Featured Image: Leonard Cohen, Old Ideas, Cover Art