The Public Origins of American Innovation

Abstract:

We provide new macroeconomic evidence on the institutional design of post-WWIIAmerican innovation using patent data that distinguish funding sources and ownershipstructures. Government-funded but privately owned patents, although only 2% of thetotal, account for about 20% of medium-term fluctuations in TFP and GDP by crowd-ing in business-sector R&D and investment. Privately funded patents yield smalleraggregate effects, while publicly owned patents show little average impact but producehighly disruptive innovations in health and biotechnology. The National Institutes ofHealth and the National Science Foundation emerge as the leading agencies in fosteringproductivity and R&D spillovers, while universities and research institutes outperformfor-profit organizations in turning government funds into TFP growth. Start-ups andventure capital-backed firms deliver greater productivity gains than established corpo-rations only when publicly funded. Our results highlight the central role of governmentsupport in sustaining U.S. technological leadership and medium-term growth