Do Formula or Competitive Grant Funds Have Greater Impacts on State Agricultural Productivity?

This article examines the impact of public agricultural research and extension on agricultural total factor productivity at the state level. The objective is to establish whether federal formula or competitive grant funding of agricultural research has a greater impact on state agricultural productivity. A pooled cross-section time-series model of agricultural productivity is fitted to annual data for forty-eight contiguous states over 1970–1999. Our results show that public agricultural research and agricultural extension have statistically significant positive impacts on state agricultural productivity. In addition, Hatch formula funding has a larger impact on agricultural productivity than federal competitive grant funding, and a reallocation of Hatch formula funds to competitive grant funding would lower agricultural productivity. This seems unlikely to be a socially optimal policy. Furthermore, from a cost-benefit perspective, our study shows that the social marginal annualized real rate of return to public resources invested in agricultural research is 49–62%, and to public agricultural extension, the rate is even larger. Copyright 2006, Oxford University Press.