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

44 Pages Posted: 19 May 2023 Last revised: 28 Nov 2024

See all articles by Andrew Fieldhouse

Andrew Fieldhouse

Texas A&M University - Mays Business School

Karel Mertens

Federal Reserve Banks - Federal Reserve Bank of Dallas

Date Written: May, 2023

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

JEL Classification: E62, O38, O47

Suggested Citation

Fieldhouse, Andrew and Mertens, Karel, The Returns to Government R&D: Evidence from U.S. Appropriations Shocks (May, 2023). FRB of Dallas Working Paper No. 2305, Available at SSRN: https://ssrn.com/abstract=4452881 or http://dx.doi.org/10.24149/wp2305r2

Andrew Fieldhouse (Contact Author)

Texas A&M University - Mays Business School ( email )

Wehner 401Q, MS 4353
College Station, TX 77843-4218
United States

Karel Mertens

Federal Reserve Banks - Federal Reserve Bank of Dallas ( email )

2200 North Pearl Street
PO Box 655906
Dallas, TX 75265-5906
United States

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