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Article

Why Public Funding for Academic Research Boosts Corporate R&D Too

Economics
Published on:

A recent study by economists Antonin Bergeaud (HEC Paris), Arthur Guillouzouic (IPP), Emeric Henry (SciencePo and CEPR), and Clément Malgouyres (CNRS and CREST) shows how government spending on academic research spurs private companies with connections to academia to spend more on their own R&D efforts as well. By studying reports produced by academic researchers and with data on labor mobility and public-private R&D partnerships, Bergeaud and his colleagues developed a new way to measure the proximity between academics and business, making us understand its benefits for innovation.

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Copyright: slonme

In early 2000, people across the world learned of a frightening new viral menace called COVID-19, so dangerous that it soon filled up hospital wards with sick and dying patients, and forced governments to shut down schools and businesses and compel people to keep their distance and wear masks when in public. But in less than a year after the pandemic began, pharmaceutical companies were able to develop and gain regulatory approach for vaccines to protect people’s lives. It was one of the greatest achievements of modern science, but it also provided further evidence of the power of government funding—in this case, by the U.S. National Institutes of Health--to stimulate private sector innovation.

 

In less than a year after the pandemic began, pharmaceutical companies were able to develop and gain regulatory approach for vaccines to protect people’s lives - evidence of the power of government funding to stimulate private sector innovation.

 

We’ve known for a while public-sector support for academic research labs tends to have what we call a spillover effect on R&D in private-sector biotechnology and pharmaceutical industries. A study published in 2019, for example, found that every $10 million boost in NIH funding resulted in 2.7 additional patents being filed by private-sector researchers. But up to this point, there hasn’t been clear evidence that public research funding has similar effects upon private R&D in other industries. 

To investigate that question, we looked at a large-scale French government funding program for research, the Laboratory of Excellence program, known as LabEX, which since its inception in 2010 has provided billions of Euros in support to academic labs. 

How We Found an Opportunity to Study R&D Spillover

This study has an unusual origin, in that it didn’t start out as a research project. Instead, we were commissioned by the French Ministry of Higher Education, Research and Innovation, which needed a proper evaluation of the LabEX program. After we looked at the data they provided us, we realized that we also could use it to answer the question of whether public funding for research has impacts upon the private sector’s own efforts to innovate. 

Everyone is interested in this question, but it’s been very hard to measure the effect empirically and make the connection between knowledge that’s produced by university research and what companies do with the knowledge. But we had been handed very detailed information about university research programs and the scientists involved that would help us to make that connection. 

We took that data and matched with a variety of other data sources about private sector R&D, ranging from information on patents that result from companies’ research to information on public-private partnerships and employment records that would help us to identify how scientists move back and forth between the public and private sector. This helped us to understand not just the extent to which public-sector research influences companies’ R&D, but the potential channels for information that exist.

When it comes to R&D spillover, LabEX was a good program to study, because it’s been very successful compared to other R&D subsidies in France that haven’t really produced a big impact. I think one of the reasons that the LabEX program is effective is that it’s a very targeted program. The government only gave money to the best laboratories, the ones that are most likely to get results and produce useful knowledge. And those in the private sector who have the capability to access and use this knowledge will benefit from it. That’s very different from a situation in which you just subsidize everyone, whether it’s university labs or firms that are trying to do some R&D and want to hire engineers. To get the most impact from subsidies, we should do targeted, directed policy (unlike the current French R&D tax credit (CIR) which, contrary to what is implemented in other countries, does not necessary target small and young firms).

Channels Between Public and Private Labs Have an Impact

In order for knowledge developed through academic labs’ research to have an impact, it has to reach the private sector. We identified three channels that allow this to happen. 

Contracting includes partnerships between universities and companies, co-supervision of PhD students, patent licensing, and of course contracts that companies give to university labs for their work. The contracting channel is mentioned in 74 % of the initial reports written by labs funded by LabEX shortly after the start of the program. University and private-sector collaboration can be a potent way to generate useful knowledge. If a company helps to outfit a university lab with state-of-the-art equipment, for example, academic researchers may come up with findings that the company’s own internal R&D teams might not obtain on their own.

Mobility is another important channel. Slightly more than half—52 %—of LabEX reports mention efforts to help students and staff move over to the private sector. Sometimes, the university researchers are encouraged to launch startup firms, or are assisted in finding jobs in the industry. In France we have a special type of company called an SATT, which basically is designed to accelerate the commercialization of technologies developed in public labs. Training and exchange programs, in which university researchers spend time working with companies, also benefit private sector R&D.

Informal contacts between public and private-sector labs are mentioned in about 30 % of LabEX reports. This could occur in seminars, or regular meetings between PhD students and academic researchers with private sector players. For example, there is a laboratory in the LabEX called ACTION, which sets up a structure for exchange of information between members of LabEX and potential private-sector partners.

The R&D Spillover Effect is Surprisingly Quick and Cost-Effective

The knowledge produced by funding for academic research in labs manages to make its way into the private sector a lot faster than I might have expected. We’re seeing it happening in a four-or-five-year time frame. It’s also noteworthy because the LabEX program is not huge. In the course of a year, the laboratories received a total of 1.5 billion Euros. That’s a lot less than the government spends on many other things (including the R&D tax credit: more than 6b€ every year), and it was surprising to see that it had so much impact. 

 

If you know that you can fund your research for the next six or eight years, you have less uncertainty, and more time to come up with results.

 

We also gained some interesting insights into why this targeted approach to funding works so well. Initially, we thought that laboratories simply would use the money to hire extra researchers and produce more research. But what the data actually suggests is that funding buys more time to complete the research. That breathing space enables them to make more contacts with private companies, who can outsource R&D projects to them. That’s an extra source of revenue for the public laboratory. If you know that you can fund your research for the next six or eight years, you have less uncertainty, and more time to come up with results.
 

How to Use the Insights

There’s clearly a benefit to government funding for academic research, but you get the most benefit from giving money to the best researchers. This is very different from the traditional French way of thinking about innovation policy, in which we focus more on equality, the idea that we should give the same amount of money to everyone. Also, since the private firms with the most exposure to knowledge from public sector labs end up doing the most R&D on their own, they too should develop more connections that will lead to innovation. Companies who understand the impact of R&D spillover could expand their efforts to form connections with private-sector labs. Also, government officials could look at increasing the amount of carefully targeted investment in public research.

Methodology

The researchers based their analysis upon application files from France’s National Research Agency (ANR) for the government’s LabEX funding program, which included a detailed summary of the projects as well as the names of coordinators and partner research units and the grades that ANR gave to the proposals. In addition, the researchers relied upon a government employment database, research tax credit data, and information from CIFRE, a government subsidy program that tracks co-supervisions of PhD candidates by public labs and companies. They also utilized government data on payroll and tax exemptions on spin-off projects launches by university students or faculty members, a European patent database, and government data on new industrial plants.
This article was based upon an interview with Antonin Bergeaud and the 2022 working paper “From Public Labs to Private Firms: Magnitude and Channels of R&D Spillovers,” co-authored with Arthur Guillouzouic, Research Economist at The Institute for Public Policy (IPP), Emeric Henry, Professor of Economics at SciencePo and CEPR Research Fellow, and Clément Malgouyres of CNRS-CREST.
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