Did R&D Misallocation Contribute to Slower Growth?

IMF Working Papers, September 12, 2025

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The paper provides evidence that rising misallocation in the R&D sector contributed to the recent slowdown in U.S. productivity growth.
Develops a growth accounting framework that allows for misallocation of R&D resources across firms, captured by wedges between their marginal cost and benefits of R&D.
Shows that R&D wedges can be measured from R&D returns and documents large and persistent differences in R&D returns across US-listed firms.
Combining data and model, estimates that frictions reduced productivity growth by 18% over 1975–2014 and that rising misallocation in the R&D sector accounts for 25% of the growth slowdown.

Growth accounting framework incorporating firm-level R&D resource misallocation.
Misallocation captured as wedges between firms’ marginal cost and marginal benefit of R&D.
Measurement approach: infer R&D wedges from observed R&D returns across firms.
Empirical focus on US-listed firms to document dispersion and persistence of R&D returns.

Frictions reduced productivity growth by 18% over 1975–2014.
Rising misallocation in the R&D sector accounts for 25% of the productivity growth slowdown.
Large and persistent differences in R&D returns across US-listed firms are documented (no additional numeric dispersion metrics provided on the landing page).

Subjects: Expenditure, Labor, Labor markets, Production, Productivity, Total factor productivity
Keywords: growth accounting framework, growth slowdown, Labor markets, Productivity, productivity growth, R&D, R&D misallocation, R&D resource, R&D return dispersion, R&D wedge, Total factor productivity