Research and Productivity Growth Across Industries

What factors underlie industry differences in research intensity and productivity growth? We develop a multisector growth model using standard parameters to capture the main factors considered in the empirical R&D and productivity growth literature. Along the balanced growth path, we find that the primary factor behind industry differences in productivity growth is the extent to which new knowledge builds upon prior knowledge. In contrast, R&D intensity also depends upon the relative importance of different sources of prior knowledge. Quantitatively, we find that the key factor behind industry differences in both productivity growth and R&D intensity is the extent to which new knowledge builds upon prior knowledge, regardless of the source.