The public origins of American innovation

Andrea Giovanni Gazzani, Joseba Martinez (), Filippo Natoli () and Paolo Surico ()
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Joseba Martinez: London Business School and CEPR
Filippo Natoli: Bank of Italy
Paolo Surico: London Business School and CEPR

No 1521, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: We study the macroeconomic effects of government-funded and privately funded innovation on postwar US productivity and economic growth. Using newly digitized data that allow us to distinguish innovations by funding source and ownership, we document systematic differences in how public and private innovation translate into aggregate outcomes. Government-funded but privately owned patents-though accounting for only about 2 per cent of total patenting-explain roughly 20 per cent of medium-term fluctuations in total factor productivity and GDP growth and are associated with strong spillovers to business-sector R&D and investment. Privately funded patents also contribute to aggregate fluctuations, but with smaller effects, while publicly owned patents display muted average impacts despite being disproportionately represented among highly disruptive innovations, particularly in health and biotechnology. Across federal agencies, innovations funded by the NIH and NSF exhibit the strongest links to subsequent productivity growth, and research institutes and universities outperform for-profit firms in converting public funding into aggregate gains. Taken together, our results highlight how the institutional design of public support for innovation shapes medium-term productivity dynamics and plays a central role in sustaining US economic growth.

Keywords: productivity; technology shocks; government-funded innovation; business cycles; economic growth (search for similar items in EconPapers)
JEL-codes: E22 E32 O41 (search for similar items in EconPapers)
Date: 2026-03
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