PRODUCTIVITY AND RESEARCH-AND-DEVELOPMENT IN 2 CANADIAN FOREST PRODUCT INDUSTRIES

This paper examines the role of research and development (R&D) in two important sectors of the Canadian economy, its pulp and paper and wood industries, A cost of adjustment model with two quasifixed inputs (ca pital and R&D) and three variable inputs (labor, materials, and wood) is used to estimate the technology, the rate of return on R&D, and its contribution to total factor productivity growth in these two industr ies. The sample is from 1963 to 1988. R&D is found to earn a net real after-tax annual rate of return of 1.6% in the pulp and paper industry and of 7.8% in the wood industry, The contribution of R&D to total fa ctor productivity growth is minimal, Scale remains the main determinan t of total factor productivity growth.