PUBLIC RESEARCH-AND-DEVELOPMENT AS A SOURCE OF PRODUCTIVITY CHANGE INSOUTH-AFRICAN AGRICULTURE

This paper uses a profit function approach to investigate the sources of productivity change in South African agriculture. Local public sect or agricultural research and international research spillovers are inc orporated directly in a dual profit function characterization of the a gricultural sector. Shadow values of these conditioning factors are de rived, providing measures of their implicit values in production. The shadow value of research is used to derive the marginal internal rate of return to public sector agricultural research (R&D), which is estim ated to be 44%. The shadow price of farm capital is found to be negati ve, which indicates over-capitalization. In contrast, labour is undere mployed. These distortions are the result of misguided macro, social a nd sector policies. This was exacerbated by the factor-saving biases o f technical change, specifically R&D. Returns to R&D expenditure shoul d be adjusted downwards to account for these social costs, implying co nsiderably lower - even negligible - social returns than those determi ned by the standard methodology.