The main novelty of this study is the introduction of a variable to
reflect the contribution of public expenditures on agricultural research
and on the dissemination of its results on the level of agricultural
productivity in different states. The measure used is quite crude: it is
the sum of all the relevant entries in the annual budget of the respective
state agricultural experiment stations and extension services. To
allow for some lags in the effect of these expenditures, this variable
was defined as an average of the flow of expenditures in the previous
year and the level six years previously. Thus, the average of 1958
and 1953 is used in the 1959 cross section, the average of 1953 and
1948 is used in the 1954 cross section, and the average of 1948 and 1945 (since the data for 1943 were not strictly comparable) is used
in the 1949 cross section. Given the crudeness of this measure, it is
surprising that it is as significant as it is. Also, its coefficient remains
remarkably stable when cross sections are added or subtracted, and
when other variables are introduced or the measurement and definition
of included variables are changed. While the estimated coefficient of
R & E may appear to be rather small-a doubling in the level of
public R & E expenditures per farm would lead to an increase in
output of only about 5 per cent-the implied absolute effect is very
large. The average (geometric) public expenditure on R & E during
the whole 1949-54-59 period was only about $32 per farm per year,
while the average gross output per farm (in 1949 prices) was $7,205
per year during the same period. Using 0.059 for the coefficient of R & E (from column 3, Table 2) leads to an estimate of its marginal
product of .059 X 7,205/32 or approximately 13 dollars of output per
year for an additional dollar of R & E expenditures per year. This
finding implies the fantastically high gross rate of return of about
1300 per cent for social investment in agricultural research and extension.
Even if one allows that much of it is the result of research expenditures
by private firms (mainly in the agricultural supplies industries),
8 and that, due to our inability to solve the agricultural problem,
the social value of additional agricultural output is only about half of
its market value, the gross social rate of return to R & E expenditures
is still about 300 per cent. This last figure is of the same order of
magnitude as a previous estimate (in [4]) of a 35 to 170 per cent
net social rate of return to agricultural research based on entirely
different data and a different approach