The economic impact of public R&D: an international perspective

Despite the fact that Research and Development (R&D) activities are carried out in most countries in public research institutes such as universities and public research organisations, there have been few studies that attempted to estimate the economic impact of such public investment in R&D. In this paper we analyse the relations between total factor productivity (TFP) and R&D as well as GDP for a set of 17 OECD countries using a vector-error-correction model (VECM). We find that for the period 1975-2014, investment in public R&D has had a clearly positive effect on TFP growth in the majority of countries analysed. In simulations allowing for a permanent positive shock on public R&D, we observe a strong dynamic complementarity between the public and private (domestic) stocks of R&D for a number of countries. In countries where this complementarity is strong, the TFP effect of extra public R&D investments is also strong. We also show that the share of foreign funding of R&D performed in the business sector combined with a high business R&D intensity, tends to be low in countries with high complementarity between private and public R&D. On the other hand, the share of basic R&D in business R&D combined with a higher public R&D intensity, tends to be higher in countries with strong complementarity.