Effects of Government R&D on Private R&D Investment and Productivity: A Macroeconomic Analysis

This article examines the effects of different government expenditures for R&D on private R&D spending and on private sector productivity. Results are consistent with the hypothesis that $1.00 of government contract R&D performed in industry induced about $.27 of private R&D expenditure. Weak indications are obtained that government-funded R&D done in government and in universities also influenced private R&D positively. Overhead reimbursement of government contractors for R&D, however, apparently reduced private R&D outlays. A positive effect of the stock of government contract R&D on private sector productivity is estimated, but it is smaller and statistically weaker than the effect of private R&D capital.