A Comparative Study of the Contribution of Research and Development Expenditures to Productivity: Japan vs. the United States

Research and development (R&D) activity averages about 2.5 percent of sales and 50 percent of net income across the economy in the United States (Madden ,1972). In Japan, the R&D expenditures average about 180 percent of net profits (Mande et al., 1996). According to a recent report from OECD (Organization for Economic Co‐operation and Development), in 1993, the gross domestic expenditure on R&D was $166,299,000,000 in the United States, compared with $122,567,000,000 in Japan. Due to its significance, the topic of R&D has come under close examination in recent years. This study will add insights by comparing the R&D expenditures of U.S. firms and Japanese firms. The following major conclusions are drawn from the evidence presented in this study: 1. The stock of R&D capital of U.S. firms is larger than that of Japanese firms. This conclusion is against popular opinion that Japanese firms have a long term orientation and are more efficient with R&D expenditures. 2. Annual R&D expenditures have a statistically significant relation with future sales in both Japan and the United States. This evidence has significant implications for accounting standards setting in both countries. 3. The R&D capitalization process developed in this study yields statistically reliable estimates of the amortization rate of R&D capital for the U.S. firms