The Returns to Government R&D: Evidence from U.S. Appropriations Shocks

Andrew Fieldhouse and Karel Mertens

No 2305, Working Papers from Federal Reserve Bank of Dallas

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.

Keywords: government; R&D; productivity; growth; narrative analysis (search for similar items in EconPapers)
JEL-codes: E62 O38 O47 (search for similar items in EconPapers)
Pages: 44
Date: 2023-05-18, Revised 2024-11-21
New Economics Papers: this item is included in nep-eff, nep-ino and nep-tid
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:fip:feddwp:96171

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DOI: 10.24149/wp2305r2

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