Technological Change in the U.S. Agriculture: The Role of Public and Private R&D

Abstract

The objective of the study is to explore the relationship between TFP growth in the U.S. agricultural sector and R&D investments. To this end, an endogenous growth model is utilized to understand the link between TFP growth and technological change, and to examine how R&D investments lead to technical change. The main feature of the model is that R&D investments and technical change are endogenously determined in the economic system. The model in this study contributes to the existing literature on endogenous growth theory by incorporating a role for the public R&D sector. The public R&D sector helps the private R&D sector through subsidies; however it also may crowd out part of private R&D sector investment by competing with it when trying to create new and better technology. In the empirical analysis, first the link between TFP growth and technical change is explored using agricultural patent data as a proxy for technical change. Next, a patent production function is estimated with explanatory variables as public and private R&D investments. Then, the factors that determine private agricultural R&D investment are examined. To pursue these objectives, a system of equations is estimated with time series data for U.S. with seemingly unrelated regression technique. A negative relationship between TFP growth in the agricultural sector and agricultural patents is found, though the coefficient estimate is insignificant. Public R&D and extension services have a positive and significant impact on TFP. Public and private agricultural R&D investments have a positive effect on agricultural patents. It is also found that public R&D investment does not crowd out private R&D investment.