Table 4: Estimations of the underinvestment gap
|
Cutoff rate Slope coefficient β1 Underinvestment gap | |||
|
Developed countries (social cutoff rate 7%) | |||
|
Baseline |
20% |
-0.0257 |
39.7% |
|
Rates of return ≤ 1985 |
20% |
-0.0242 |
37.0% |
|
Rates of return >1985 |
20% |
-0.0264 |
41.0% |
|
5% points lower cutoff rate |
15% |
-0.0259 |
23.1% |
|
5% points higher cutoff rate |
25% |
-0.0262 |
60.4% |
|
Developing countries (social cutoff rate 12%) | |||
|
Baseline |
40% |
-0.0308 |
136.9% |
|
Rates of return ≤ 1985 |
40% |
-0.0313 |
139.9% |
|
Rates of return >1985 |
40% |
-0.0305 |
134.8% |
|
10% points lower cutoff rate |
30% |
-0.0300 |
71.6% |
|
10% points higher cutoff rate |
50% |
-0.0295 |
206.3% |
|
Africa |
30% |
-0.0349 |
87.3% |
|
Asia |
45% |
-0.0162 |
70.3% |
|
Latin America |
40% |
-0.0442 |
244.5% |
5. R&D opportunity curve
In the previous sections agricultural R&D investments have been characterized without any reference
to the actual amount invested. In this section the analysis will be taken a step further by linking the
characteristics of the reconstructed ex ante distribution of agricultural R&D projects (i.e., the implicit
cutoff rate and slope coefficient β1 ) with past agricultural R&D investment levels as reported by
Anderson, Pardey, and Roseboom (1994). By accumulating the ranked distribution, a third dimension
can be added to the picture, namely, that of R&D expenditure or intensity. The resulting R&D
opportunity curves provide a comprehensive way of simultaneously illustrating the differences in
R&D opportunities and underinvestment between developed and developing countries (figure 5).
In retrospect, the optimal level of investment in agricultural R&D for developed countries can
be estimated at $6.7 billion per annum rather than the actual $4.8 billion spent, by bringing the cutoff
rate down from 20% to 7%.1 For developing countries the difference is substantially larger - rather
than the actual $4.4 billion, $10.4 billion could have been spent before reaching the social cutoff rate
of 12% (figure 5a). In relative terms, however, the developed countries clearly stand out as having a
1 The expenditure data reported here are expressed in constant 1985 PPP dollars.
17