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.[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 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.[2] In terms of R&D funders, public R&D to private R&D ratio is about 0.5.

This figure is made according to the survey of National Science Foundation is U.S.

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[3]; Nadiri and Mamuneas, 1994[4]).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[5] ;Cohen, Coval, and Malloy, 2011[6]; Azoulay, Zivin, Li, and Sampat, 2018[7]).

Stock returns

Public R&D is also positively related to stock returns of industrial firms (Chen, Chen, Liang, and Wang, 2020).[1] 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.

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References
  1. Chen, Sheng-Syan; Yan-Shing Chen; Woan-lih Liang; Yanzhi Wang. (2020). "Public R&D spending and cross-sectional stock returns". Research Policy. 49: forthcoming. doi:10.1016/j.respol.2019.103887.
  2. "Research and Development: U.S. Trends and International Comparisons, National Science Foundation" (PDF).
  3. Levy, David M.; Nestor E. Terleckyj (1983). "Effects of government R&D on private R&D investment and productivity: A macroeconomic analysis". The Bell Journal of Economics. 14 (2): 551–561. doi:10.2307/3003656. JSTOR 3003656.
  4. Mamuneas, Theofanis P.; M. Ishaq Nadiri (1996). "Public R&D policies and cost behavior of the US manufacturing industries" (PDF). Journal of Public Economics. 63: 57–81. doi:10.1016/S0047-2727(96)01588-5.
  5. Toole, Andrew A. (2007). "Does public scientific research complement private investment in research and development in the pharmaceutical industry?". The Journal of Law and Economics. 50: 81–104. doi:10.1086/508314.
  6. Cohen, Lauren; Joshua Coval; Christopher Malloy (2011). "Do powerful politicians cause corporate downsizing?" (PDF). Journal of Political Economy. 119 (6): 1015–1060. doi:10.1086/664820.
  7. Azoulay, P.; Graff Zivin, J. S.; Li, D.; Sampat, B. N. (2019). "Public R&D investments and private-sector patenting: evidence from NIH funding rules". The Review of Economic Studies. 86 (1): 117–152. doi:10.1093/restud/rdy034. PMC 6818650. PMID 31662587.

/ref>; Nadiri and Mamuneas, 1994

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