R& D investments, outsourcing and non-neutral productivity growth

In this paper we use data on Taiwanese electronics firms to analyze the impacts of firm R& D investments and the number of affiliates in a model with non-neutral technical change. We estimate capital-augmenting productivity from the relative labor demand function while labor-augmenting productivity is estimated from the value-added production function. The empirical results indicate that R& D investments have a large and positive effect on labor-augmenting productivity while an increase in the number of affiliates increases the capital relative to labor-augmenting productivity. These labor and capital efficiency estimates are used to understand the empirical regularities that we observe about the factor-intensities employed by Taiwanese electronics firms in the cross-section as well as over time. In the cross-section, the higher capital-intensity of larger firms reflects an underlying pattern of more rapid increase in labor productivity relative to capital productivity. In the time series, the decline in the overall capital-labor ratio in the industry reflects an opposing pattern of more rapid growth in capital productivity compared to labor productivity.