Public Investment in R&D and Agriculture Productivity in Australia

This paper uses time-series data to examine the relationship between public research and development (R&D) and extension investment and productivity growth in Australian broadacre agriculture. The results show that public R&D investment has significantly promoted productivity growth in Australia's broadacre sector over the past five decades (1953 to 2007). The estimated elasticity of total factor productivity (TFP) to knowledge stocks of research (both domestic and foreign) and extension were around 0.20'0.24 and 0.07'0.15 respectively, the ranges reflecting alternative distributions of benefits flowing from knowledge stocks. These elasticities translated into internal rates of return (IRR) of around 15.4'38.2 per cent and 32.6'57.1per cent respectively. While such rates are less than the average IRR reported in the international literature of 100 per cent, they are consistent with previous estimates for Australian agriculture of around 15'40 per cent. These rates of return may be indicative of underinvestment in agricultural R&D in Australia.