Economic impact of public R&D

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 organizations, there have been few studies that attempted to estimate the economic impact of such public investment in R&D. In this paper, we analyze the relations between total factor productivity (TFP) and public and private R&D as well as gross domestic product for a set of 17 Organisation for Economic Cooperation and Development (OECD) countries using a vector-error-correction model. 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 analyzed. In simulations allowing for a permanent positive shock to public R&D, we observe a strong dynamic complementarity between the public and private (domestic) stocks of R&D for several countries. In countries where this complementarity is strong, the TFP effect of extra public R&D investments is also strong. A discriminant analysis shows that in countries with high complementarity between private and public R&D, 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. At the same time, 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.