Public research and development



Public research and development (Public R&D) refers to the R&D activities related to public sectors, including governments, colleges and non-profit organizations. Public R&D include academic fundamental research, applied research and R&D grants and contracts to private sectors, where later two are known as 'R&D subsidy'. Public R&D could be understood as a funder or a performer of an R&D activity. According to National Science Foundation in U.S., in 2015, R&D expenditures performed by federal governments, local governments, colleges and non-profit organizations are 54, 0.6, 64, and 20 billions of dollars, respectively. Meanwhile, industries perform R&D expenditures of 356 billion dollars. Moreover, R&D expenditures funded by federal governments, local governments, colleges and non-profit organizations are 121, 4.3, 17, and 19 billions of dollars, respectively. R&D expenditures funded by industries are 333 billion dollars. In terms of R&D funders, public R&D to private R&D ratio is about 0.5.

Israel is the world leader as a percentage of GDP in public spending in research and development, the United States leads in total sums spent.

Economic impacts
Economists have made significant strides to understand the dynamics of public R&D, along with its cascading effects.

Productivity
Scholars generally propose that public R&D enhances industrial productivity (e.g., Levy and Terleckyj, 1983; Nadiri and Mamuneas, 1994 ).However, the improvement of productivity could result in R&D spill-over of public sectors, researcher movements and co-operation between public and private sectors.

R&D investment of private sectors
Economists are particularly concerned about whether public R&D stimulates or crowds out the private sector R&D. It is generally known as a 'policy success', if the public R&D (especially the government R&D subsidy) could stimulate the R&D investment of private sectors. So far, there is no conclusive viewpoint in the literature (e.g., Toole, 2007; Cohen, Coval, and Malloy, 2011; Azoulay, Zivin, Li, and Sampat, 2018 ).

Stock returns
Public R&D is also positively related to stock returns of industrial firms (Chen, Chen, Liang, and Wang, 2020). Although they show that abnormal returns based on public R&D ratio generate about 0.9% abnormal returns per month, and suggest that the positive relation could be interpreted by increased cash flow risks.

European Union
The EU spent €352 billion on R&D in 2022, 2.22% of EU GDP. R&D as a percentage of GDP was highest in Belgium (3.44%), followed by Sweden (3.40%), Austria (3.20%) and Germany (3.13%) as of 2022.

Israel
Israel leads the world in spending as a percentage of the economy on Research and development. Israel spent 6.02% of its GDP on R&D. Israel has focused on development on human capital investment with significant investment going toward knowledge based sectors of the economy.

United States
The United States spends the most on R&D in pure terms of investment. Federal research and development budget in the fiscal year of 2020 was $156 billion.