The relationship between public and private R&D funding
Oxford Economics was commissioned by the Department for Business, Energy and Industrial Strategy (BEIS), to assess the impact of public R&D support on levels of private R&D spending in the UK and other advanced economies.
Innovation enhances productivity and drives long-run prosperity. It can create new and improved products and processes, and generate cost savings for companies and the taxpayer, as well as numerous other benefits. However, a range of market failures mean that if left entirely to the market, the amount of R&D which takes place would be considerably less than optimal. These failures provide a strong case for government intervention to support R&D across the economy.
Against this backdrop, BEIS was looking to deepen its understanding of the impact of public R&D investment on private R&D investment. It commissioned Oxford Economics to undertake independent research to update the evidence base in this field using the most recent and comprehensive datasets, and through the application of the latest analytical techniques.
For the UK, we found that each £1 of public R&D stimulates between £0.41 and £0.74 of private R&D within the same year. In the long run, the same £1 of public R&D eventually stimulates between £1.96 and £2.34 of private R&D (inclusive of the impact in the first year).
Alongside our analysis of the UK, we estimated the link between public and private R&D rates for nine other OECD countries. We found a wide variation in the impacts of public R&D on private R&D across countries. The greatest impact was found for Japan, where £1 of public support would stimulate £3.16 of public investment in the long term. In contrast, the same £1 of public support in Spain would encourage just £1.21 of private investment.
Our economic consulting team are world leaders in quantitative economic analysis, working with clients around the globe and across sectors to build models, forecast markets and evaluate interventions using state-of-the art techniques. Lead consultants on this project were:
Andrew P. Goodwin
Director of Applied Economics, Europe & Middle EastEmail