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Public R&D

Public research and development (public R&D) refers to the R&D activities related to public sectors, including governments, colleges and non-profit organizations. [1] 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 government, local governments, colleges and non-profit organizations are 54, 0.6, 64, and 20 billions of dollars, respectively. Meanwhile, industry performs R&D expenditures of 356 billions of dollars. Moreover, R&D expenditures funded by federal government, local governments, colleges and non-profit organizations are 121, 4.3, 17, and 19 billions of dollars, respectively. R&D expenditures funded by industry are 333 billions of dollars. [2] In terms of R&D funders, public R&D to private R&D ratio is about 0.5.

Economic impacts

Economic and management papers have spent significant efforts in understanding the real effect of public R&D and propose that public R&D enhances industrial productivity (e.g., Levy and Terleckyj, 1983[3]; Nadiri and Mamuneas, 1994[4]). The improvement of productivity could result from R&D spillover of public sectors, researcher movements and cooperation between public and private sectors. Economists are particularly concern about whether public R&D stimulates or crowds out the private sector R&D. There is no conclusive viewpoints in the literature (e.g., Toole, 2007[5]; Cohen, Coval, and Malloy, 2011[6]; Azoulay, Zivin, Li, and Sampat, 2018[7]). Public R&D is also positively related to stock returns of industrial firms (Chen, Chen, Liang, and Wang, 2020), and the positive relation could be interpreted by increased cash flow risks. [1] Chen, Sheng-Syan, et al. "Public R&D spending and cross-sectional stock returns." Research Policy 49.1 (2020): 103887. https://doi.org/10.1016/j.respol.2019.103887

[2] https://www.nsf.gov/statistics/2018/nsb20181/assets/1038/research-and-development-u-s-trends-and-international-comparisons.pdf

[3] Levy, David M., and Nestor E. Terleckyj. "Effects of government R&D on private R&D investment and productivity: a macroeconomic analysis." The Bell Journal of Economics (1983): 551-561. DOI: 10.2307/3003656

[4] Mamuneas, Theofanis P., and M. Ishaq Nadiri. "Public R&D policies and cost behavior of the US manufacturing industries." Journal of Public Economics 63.1 (1996): 57-81. https://doi.org/10.1016/S0047-2727(96)01588-5.

[5] Toole, Andrew A. "Does public scientific research complement private investment in research and development in the pharmaceutical industry?." The Journal of Law and Economics 50.1 (2007): 81-104. https://doi.org/10.1086/508314

[6] Cohen, Lauren, Joshua Coval, and Christopher Malloy. "Do powerful politicians cause corporate downsizing?." Journal of Political Economy 119.6 (2011): 1015-1060. https://doi.org/10.1086/664820

[7] Azoulay, Pierre, et al. "Public R&D investments and private-sector patenting: evidence from NIH funding rules." The Review of Economic Studies 86.1 (2018): 117-152. https://doi.org/10.1093/restud/rdy034