Multifactor Productivity and R&D in Australian States

Conference presentation

The conference presentation, Multifactor Productivity and R&D in Australian States, was presented by Jimmy Louca from the Queensland Treasury, at the Productivity Perspectives 2004 conference.

Abstract

While much attention has been paid to the acceleration in multifactor productivity (MFP) growth in Australia over the past decade and a half, less consideration has been given to the distribution of these MFP gains across the states. This paper examines MFP as a source of interstate differences in economic performance and looks at business R&D as an explanation for state MFP trends. The paper finds that the states that had the highest annual economic growth over 1985-86 to 2000-01, such as Queensland and Western Australia, also recorded the highest growth in MFP and R&D. The paper also finds that while labour productivity levels have diverged, differences in capital deepening have masked an underlying process of convergence in MFP amongst the five largest states. An econometric analysis finds evidence of interstate R&D spillovers and some equalisation in the returns to R&D across states, both consistent with convergence. Returns to business R&D were estimated to be initially highest in Queensland and Western Australia, suggesting these states faced the most profitable opportunities from R&D and invested most heavily in R&D, causing their levels of MFP to converge on that in New South Wales and Victoria relatively faster than that experienced in other states. These findings lead to some general policy implications for particular states.

This paper is a version of chapter five in the recently released volume, C. Williams, M. Draca and C. Smith (eds) (2003) Productivity and Regional Economic Performance in Australia. Queensland Government; Brisbane. A copy of this publication can be ordered from the Office of Economic and Statistical Research (OESR), Queensland Treasury at www.oesr.qld.gov.au.

All Statements views, opinions and advice expressed or implied in this article are those of the individual author and do not necessarily reflect the views and opinions of Queensland Treasury or the Queensland Government.