THE SUBSTITUTABILITY OF CAPITAL, LABOR, AND R&D IN US MANUFACTURING

This paper examines the relationship between inputs in industrial production. The inputs studied here are capital, labor, and research and development (R&D). Using translog technology, our cross-industry analysis of six industries reveals that capital and labor are complements in production while R&D and labor are substitutes. However, the relationship between capital and R&D is not so clear cut. It is also found that constant-returns-to-scale hold for only two of the six industries. A test of sensitivity to changes in the R&D depreciation rates suggests that some industries are sensitive to such changes.