Alejandro Nin-Pratt, Eduardo Magalhaes
International Food Policy Research Institute (IFPRI)
This study employs a new approach to calculating a country‘s rate of return on its investment in agricultural research, avoiding methodological problems that have in the past led to very high and implausible rates of return. Employing the new approach — using partial least squares to determine the key parameters of the perpetual inventory method model of capital stock — the authors calculate agricultural research knowledge stocks and elasticities, and find an average agricultural research elasticity for low- and middle-income countries of 0.23 and an average rate of return to agricultural research investment of 6.0 percent. This is higher than the average rate of return to investment in other social projects (the social discount rate) which, for these countries, is 4.2 percent. The study concludes that 60 percent of low- and middle-income countries in the sample are underinvesting in agricultural research.