R&D Intensity, ICT Investment and Industry Productivity Growth*

This paper takes a step toward identifying the ultimate drivers of productivity growth at the industry level. Based on Neoclassical and New Growth Theory we develop an empirical methodology that allows us to test for the fundamental drivers of industry productivity growth. We present two sets of industry classifications, one based on ICT intensity and another based on innovation types. Using OECD data we show how similar the contributions of ICT-Intensive or Science-Based industries are to value-added. However, the distribution of R&D in these industries across OECD countries is shown to vary dramatically. Our panel data results confirm that for both types of industry classifications the source of strong capital deepening contributions to productivity growth are indeed to be found in industry-level R&D. But not any industry’s R&D. We show that it is either ICT-Producing industries’ R&D or Science-Based Innovating industries’ R&D that are the crucial determinant of productivity growth. JEL Classification: O3, O4