This paper examines the sources of productivity growth for the, U.S. telecommunications industry from 1935 to 1987. These years encompass both the pre-and post-AT&T divestiture periods. We formulate a structural model that accounts for both changes in the cost and the demand side of the industry. We measure the contributions of aggregate demand, information intensity of the economy, price-cost margins, relative factor prices, direct and indirect effects of technological progress, and R&D investment on total-factor productivity (TFP) growth rate. We show that TFP growth rate as conventionally measured is a seriously biased measure of rate of technical change in this industry.

The authors estimate a model of production and investment based on the theory of dynamic duality. They are particularly interested in the effects of R&D spillovers and in calculating the social and private rates of return. Cost-reducing, factor-biasing and capital-adjustment spillover effects are estimated for four industries. The existence of R&D spillovers implies that the social and private rates of return to R&D capital differ. The authors estimate that the social return exceeds the private return in each industry. Moreover, there is significant variation across industries in the differential between the social and private rates of return.

This paper presents estimates of the productivity and factor bias effects of interindustry R&D spillovers for five high-tech industries. Each industry is distinguished as a separate spillover source. The industries are each affected by R&D spillovers and are themselves spillover sources. Thus a spillover network between the industries is estimated. Private and social rates of return to R&D capital are calculated. The private rates of return are generally greater than the returns to physical capital. In addition, the social rates of return are greater than the private rates. The results show that there are significant differences between industries as to their importance as sources of R&D spillovers.