The Returns to Government R&D: Evidence from U.S. Appropriations Shocks
Abstract: Based on a narrative classification of all significant postwar changes in R&D appropriations for five major federal agencies, we find that an increase in nondefense R&D appropriations leads to increases in various measures of innovative activity and higher business-sector productivity in the long run. We structurally estimate the production function elasticity of nondefense government R&D capital using the SP-IV methodology of Lewis and Mertens (2023) and obtain implied returns of 140 to 210 percent over the postwar period. The estimates indicate that government-funded R&D accounts for one-fifth of business-sector TFP growth since WWII, and imply substantial underfunding of nondefense R&D.
DOI: https://doi.org/10.24149/wp2305r2
Appendix DOI: https://doi.org/10.24149/wp2305appr2
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