The Economic Spillovers from Science

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Spending on science is increasingly motivated by the economic spillovers it generates, such as job creation, but there are mixed views of the overall benefits of scientific activities. On the one hand, science research is seen as an economic driver for the communities where it is produced. The successes of Silicon Valley in Northern California, the Route 128 corridor around Boston MA, the Research Triangle Park in North Carolina, and the clusters of small tech startups in Austin TX are often attributed to the scientific research produced in these communities. On the other hand, science is often viewed as being primarily "ivory tower," with limited practical value. A quantitative understanding of the economic spillovers from science is critical for policy makers from the state and local levels to the national level seeking to set science-funding levels. Despite this policy interest, there is surprisingly little work quantifying the economic benefits of science. This project provides such estimates, showing what results we should expect from science and research spending in cities across the nation.In addition to leading directly to valuable inventions, scientific activity is believed to raise productivity in the communities where it is performed. This project focuses on these productivity spillovers. Our understanding of these economic spillovers from science is not very good yet, at least in part because there are three significant challenges to estimating the spillover benefits of science. Specifically:(1) Cities like Boston and San Francisco, where a large amount of research is performed, may be inherently different from cities with a small amount of research. Such differences are likely to lead researchers to misstate the spillover benefits from science, attributing to "science in the city" what is really attributable to the city itself. (2) The typical person living in a city with a lot of scientific activity may be more productive than the typical person in other cities. For instance, a large amount of science is produced by universities, which clearly generate skills for their students and may attract highly productive workers. Such differences would tend to lead researchers to overstate the spillover benefits of science.(3) If research raises productivity in a city, it would be natural to expect workers to move to that city and for the city to expand. An inflow of workers to cities with more scientific activity but not more jobs will depress wages, however, leading researchers to understate the spillovers from science.This project includes all of these effects in estimating the economic spillovers from science. We relate wages, real-estate prices, and other important economic outcomes in a city to measures of scientific activity there. We exploit a wide range of strategies to address all three of the challenges that have frustrated previous research, including developing a general framework in which they can be addressed. We will also produce rich data on scientific activity that will be available for future research. Broader ImpactsThese estimates will help policymakers value the economic benefits generated by science to fine-tune science investments. The project will specifically determine how scientific activity affects underrepresented groups based on gender, race, ethnicity, and age. The strategy developed under this project can also be applied to estimate the benefits of science stimulus spending and evaluate which expenditures produced the most benefits.