Changes in production technology are usually a result of R&D efforts. In this paper a model is presented in which technological change emanates from production factors used for R&D. The model consists of two production sectors, one concerned with the production of consumption and investment goods, the other with that of new technologies. By means of this model we analyse the impact of R&D on the level of immediate income and the efficient allocation of production factors over both sectors. Furthermore, the existence of a steady state in this model is examined. It turns out that such a state is only possible under restrictive conditions.