Returns to Public Research and Development
This is a study to estimate the rate of return to public research and development (R&D) spending.
Documents
Details
Frontier Economics, on behalf of the Department of Science, Innovation and Technology, have conducted an econometric study to estimate the rate of return to public research and development (R&D) spending.
This study includes:
- empirical estimates of the rate of return to public R&D, defined as R&D that is both funded by and conducted in the public sector
- qualitative case studies to explore wider mechanisms through which public R&D investment can generate returns
The new empirical results indicate that public R&D generates economically significant positive returns in terms of increasing private sector productivity growth.
The study finds an average rate of return to public R&D of 40% 6 years after the investment is made. In other words, £100 million of public R&D investment could be expected on average to yield, in 6 years’ time, an increase in annual private sector productivity worth £40 million. The £40 million increase persists over time, and if anything the estimates suggest that an even greater return could be experienced over a longer time period.
While it is inherently challenging to estimate R&D rates of return, and the estimates of this study should be interpreted cautiously given the range of results across different specifications and specific measurement challenges, this research finds evidence that public R&D investment leads to significant economic benefits.