American Economic Review Vol. 116 No. 11 2026
The Returns to Government R&D: Evidence from US Appropriations Shocks
Abstract
Based on a narrative classification of all significant postwar changes in R&D appropriations for five major federal agencies, we find that an increase in nondefense R&D appropriations leads to increases in various measures of innovative activity and higher business-sector productivity in the long run. We structurally estimate the production function elasticity of nondefense government R&D capital using the SP-IV methodology of Lewis and Mertens (2024) and obtain implied returns of 140 to 210 percent over the postwar period. The estimates indicate that government-funded R&D accounts for one-fifth of business-sector TFP growth since WWII and imply substantial underfunding of nondefense R&D.
- DOI
- 10.1257/aer.20231684
- Volume
- 116
- Issue
- 11
- Pages
- 3959-4002
- Language
- en
- Sources
- crossref openalex