The Impact of Research and Development on Economic Growth and Productivity in the US States

We estimate the impact of R&D on TFP and output in the private sector at the state level in the US from 1963 to 2007. R&D has a large effect on both output and TFP at the state level in the long run. The R&D elasticity in a state averages 0.056 to 0.143, implying returns to state GDP from R&D spending of 83% to 213%. There are also positive R&D spillovers, with 77% of the total returns accruing to other states. The R&D elasticities are either stable or increase slightly after 1993. The effects of R&D are dependent on the levels of human capital and development. States with more human capital have higher own- and other-R&D elasticities. States in the lowest tier of economic development have the least own-state R&D elasticity but the highest other-R&D elasticity. We discuss implications for policy in the US and in developing countries