IMF Working Papers

Did R&D Misallocation Contribute to Slower Growth?

By Nils H. Lehr

September 12, 2025

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Format: Chicago

Nils H. Lehr "Did R&D Misallocation Contribute to Slower Growth?", IMF Working Papers 2025, 183 (2025), accessed September 14, 2025, https://doi.org/10.5089/9798229025379.001

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Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

This paper provides evidence that rising misallocation in the R&D sector contributed to the recent slowdown in U.S. productivity growth. I develop a growth accounting framework allowing for misallocation of R&D resources across firms captured by wedges between their marginal cost and benefits of R&D. I show that R&D wedges can be measured from R&D returns and document large and persistent differences in R&D returns across US-listed firms. Combining data and model, I estimate that frictions reduced productivity growth by 18% over 1975–2014 and that rising misallocation in the R&D sector accounts for 25% of the growth slowdown.

Subject: Expenditure, Labor, Labor markets, Production, Productivity, Total factor productivity

Keywords: Growth slowdown, Labor markets, Productivity, Productivity growth, R&D, Total factor productivity

Publication Details

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