Study Finds Public Support of Basic Research Pays Off

With federal support for the National Institues of Health increasing substantially each year -- to the point now that NIH supports more than 50 percent of the federal basic research budget -- and some states directing millions of dollars each year into health and biotechnology research, one might stop to ask: is it worth it? If an objective of states' supporting basic research is economic development, and only five to seven percent of federally funded basic research is conducted by private industry according to the National Science Foundation, then the transfer from universities and additional "spillover" of academic research into the local economy must be significant to warrant long-term investment. So is it? 



An increasing library of econometric studies have been prepared looking at the influence of academic spillovers on issues such as corporate patenting and productivity (several have been discussed in the SSTI Weekly Digest: see 6/01/01, 11/17/00 and 8/25/00). A recent discussion paper released by the Stanford Institute for Economic Policy Research, using the pharmaceutical industry as a case study, suggests that the economic return on publicly funded basic research is substantial but on a time dimension that may be greater than most state and local leaders are anticipating. 



Using micro-level data on product innovation made available as a result of the rigorous review structure required to secure approval from the Food and Drug Administration, Stanford University's Andrew A. Toole found a one-percent increase in public support for basic research ultimately leads to a 2.0 - 2.4 percent increase in the number of commercially available new pharmaceutical compounds. "Ultimately" translates to a lag time between funding and commercialization of 17 to 19 years on average. His analysis is presented in The Impact of Public Basic Research on Industrial Innovation: Evidence from the Pharmaceutical Industry . 



In order to estimate the timing, magnitude, and significance of public basic research on pharmaceutical product innovation, Toole gathered data from the Food and Drug Administration, the National Institutes of Health, and the Pharmaceutical Research and Manufacturers Association. He then used regression analysis to determine lag time in pharmaceutical innovation under several alternative models. 



Toole chose the pharmaceutical industry for this analysis, due to the industry's structure and orientation toward science. He warns, unfortunately, that the unique structure of the pharmaceutical innovative process makes it difficult to apply the report's findings to other areas, but also urges future research to be directed at improving the understanding of innovation and R&D in other technological areas.



The full report can be obtained from SIEPR at: http://siepr.stanford.edu/papers/pdf/00-07.html