The Returns to Investment in Agricultural Research in Finland 1950—1984

John Sumelius

doi:10.23986/afsci.72267

Abstract

This study attempts to estimate the value marginal product and the marginal internal rate of return for agricultural research in Finland. Based on production function analysis, different Cobb-Douglas and linear models are specified and estimated. A variable for the research input is measured through the flow of public expenditures for research and university-level education in 1950—1984. In addition, a stock of research capital consisting of funds accumulated since 1920 is constructed and included in the models. The estimates of elasticity with respect to public research are used to compute rates of return. State expenditures for extension agencies are also taken into account on the cost side. It is concluded that the stock of research capital estimates are more believable than the flow estimates, because of difficulties in identifying an appropriate lag. Based on the stock estimates, the value marginal product for public research during the period studied seems to have been 1.83—1.91. The conclusion implies that additional public investment in agricultural research would have annually returned by 183—191 % over the inflation rate. The marginal internal rate of return for public research is calculated to have been 20—62 % depending on the length of the lag (4—10 years).

Highlights

The most important variable explaining differences from one country to another as to agricultural productivity is the ability to create a technology adapted to the particular country’s physical, environmental and cultural endowments
The purpose of this study is to fill that gap by seeking an answer to the following question; What has been the value marginal product as well as the marginal internal rate of return for public expenditure on agricultural research and for total public and private expenditures on agricultural research 1950—1984?
The results showed that the optimal rate of future investment in agricultural research depends on the growth of demand

Summary

Introduction

The most important variable explaining differences from one country to another as to agricultural productivity is the ability to create a technology adapted to the particular country’s physical, environmental and cultural endowments. Estimation of the value of research is a difficult task complicated by great uncertainties. In spite of these difficulties the task seems to be important. The estimated annual rate of return in these countries has varied from approximately 20 to 80 %. Both consumers and producers benefit from this social rate of return through lower costs of food and reduced production costs (Pinstrup-Andersen, 1982)

Objectives

Methods

Findings

Conclusion