What’s a dollar of R&D worth?

Here at AGF, we tend to think investment in research and development, whether by governments through agencies like the National Institutes of Health or in private businesses and universities, is worth an awful lot. When you get down to it, economic growth is about getting more benefit out of the same amount of physical stuff; you can only extract more benefit from the same stuff if you have better technology, and you get better technology through scientific research.

But just how beneficial is R&D? A big new report out of the Congressional Budget Office, coauthored by economists Sheila Campbell, Jaeger Nelson, Eli Schrag, Heidi Williams, and Caleb Wroblewski, has some of the most careful analysis of this question to date, using two radically different methodologies that come to quite different numbers. One approach results in an estimate that each federal dollar spent on R&D, financed by an increase in the budget deficit, grows GDP by $5.15. An alternative framework leads to an estimate of $1.98; the numbers in each case are higher if you pay for the funding through spending cuts, rather than borrowing it. Even the smaller number implies that R&D spending is an incredible deal, with each dollar invested doubling its value.