Over the past decade, considerable emphasis has been placed on determining ways of upgrading the competitiveness of Taiwan’s traditional manufacturing sector, with the government encouraging manufacturers in the traditional industries to engage in R&D investment or to adopt advanced technologies in order to enhance their competitive edge. However, R&D performance has never been examined within these industries nor has the spillover effects from the high-tech sector. This project therefore aims to estimate the R&D output elasticity of the traditional manufacturing sector and the rates of return on investment within this sector. We also examine R&D spillover from the high-tech sector and its contribution to manufacturing firms within the traditional industries. Our examination of R&D performance will be based on a sample of 93 manufacturing firms within the traditional industries, completely balanced over the period from 1994 to 2000. As a result of the non-availability of data, R&D capital is constructed. Our model is developed based upon the extended Cobb-Douglas production function.
