R&D And Productivity: Estimating Production Function When Productivity Is Endogenous

We develop a simple estimator for production functions in the presence of endogenous productivity change that allows us to retrieve productivity and its relationship with R&D at the firm level. We relax the assumptions on the R&D (Research & Development) process and examine the impact of the investment in knowledge on the productivity of firms. Abstracting from uncertainty and nonlinearity, as is done in the knowledge capital model, or assuming an exogenous process for productivity, as is done in the literature on structural estimation of production functions overlooks some of its most interesting features.