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What factors underlie industry differences in research intensity and productivity growth? The authors develop a multi-sector endogenous growth model allowing for industry specific parameters in the production functions for output and knowledge, and in consumer preferences. They find that long run industry differences in both productivity growth and R&D intensity mainly reflect differences in "Technological opportunities", interpreted as the parameters of knowledge production. These include the capital intensity of R&D, knowledge spillovers, and diminishing returns to R&D.
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