Institutional Learning and Change Initiative

The following text is drawn from ISNAR (2003).

Econometric methods are based on the specification of functional relationships between ongoing industry output or productivity, and research and non-research inputs. On the basis of the functional relationships specified, statistical measures of social returns to expenditures on research can be estimated. The econometric approach is commonly referred to as the production function approach.

Problems with Econometric Methods

Econometric methods are very demanding in terms of design, data, specification of behavioral relationship, and the specific functional form. In addition, there are no clear ways of knowing if the functional form is correct. However, the resulting estimates of the social rates of return are quite sensitive to the specification. This is also exacerbated by the fact that the selection of variables is somewhat subjective.
 

Source: ISNAR (2003) Monitoring, Evaluation, and Impact Assessment of R&D Investments in Agriculture, The Hague: International Service for National Agricultural Research.