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TABLE 2-2 Annual Rate of Return on Private R&D Investment

Researcher

Estimated Rate of Return %

Private

Social

Nadiri (1993)

20-30

50

Mansfield (1977)

25

56

Terleckyj (1974)

29

48-78

Sveikauskas (1981)

7-25

50

Goto-Suzuki (1989)

26

80

Bernstein-Nadiri (1988)

10-27

11-111

Scherer (1982, 1984)

29-43

64-147

Bernstein-Nadiri (1991)

15-28

20-110

SOURCE: Center for Strategic and International Studies. Global Innovation/National Competitiveness. Washington, DC: CSIS, 1996.

Those “social rates of return”16 on investments in R&D are reported to range from 20 to 100%, with an average of nearly 50%.17 As a single example, in recent years, graduates from one US university have founded 4,000 companies, created 1.1 million jobs worldwide, and generated annual sales of $232 billion.18

Although return-on-investment data vary from study to study, most economists agree that federal investment in research pays substantial economic dividends. For example, Table 2-3 shows the large number of jobs and revenues created by information-technology manufacturing and services—an industry that did not exist until the recent past. The value of public and private investment in research is so important that it has been

16

“Social rate of return” is defined in C. I. Jones and J. C. Williams. “Measuring the Social Return to R&D.” Working Paper 97002. Stanford University Department of Economics, 1997. Available at: http://www.econ.stanford.edu/faculty/workp/swp97002.pdf#search=‘R&D%20social%20rate%20of%20return. They state, “One can think of knowledge as an ‘asset’ purchased by society, held for a short period of time to reap a dividend, and then sold. The return can then be thought of as a sum of a dividend and a capital gain (or loss). … The dividend associated with an additional idea consists of two components. First, the additional knowledge directly raises the productivity of capital and labor in the economy. Second, the additional knowledge changes the productivity of future R&D investment because of either knowledge spillovers or because subsequent ideas are more difficult to discover.” Pp. 6-8.

17

M. I. Nadiri. “Innovations and Technological Spillovers.” Economic Research Reports, RR 93-31. New York: C. V. Starr Center for Applied Economics, New York University Department of Economics, August 1993. Nadiri adds, “The channels of diffusion of the spillovers vary considerably and their effects on productivity growth are sizeable. These results suggest a substantial underinvestment in R&D activity.”

18

W. M. Ayers. MIT: The Impact of Innovation. Boston, MA: Bank Boston, 2002. Available at: http://web.mit.edu/newsoffice/founders/Founders2.pdf.



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