Investing in science, research and technology: where is the biggest bang for the buck?

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As regional economies increasingly compete at the national and international levels to develop their innovative edge, helping regions identify and support the factors at the origin of innovation has become one of the most important tasks of regional economic developers. This project is based upon the knowledge production function literature which relies on a statistical approach to estimate the impact of investments in R&D (Research and Development) on the production of innovation. Because this project focuses on the production of innovation at the regional level, it requires us explicitly to account for the role of knowledge externalities between regions, a phenomenon brought to the fore by the new literature in economic geography. As of today, however, only a handful of studies use the appropriate statistical techniques to model and measure interregional knowledge externalities; when they do, they make global (not local) measurements which mask significant variations in the characteristics of innovation across regions. As such, this work improves upon the traditional approach by providing measurements of knowledge spillovers at the local level, i.e. for every single region. This work also investigates the dynamics of regional knowledge creation for four "high-technology" sectors to better substantiate differences in knowledge externalities across sectors. In addition, the statistical analysis is performed on three different spatial scales (US counties, Metropolitan Statistical Areas and States), making this work more complete and informative to local governments than traditional approaches. Another contribution is a method of measuring the amount of income and jobs created by R&D investments, i.e. their social returns. This contribution is accounted for through the modeling of interregional externalities by means of two complementary techniques called spatial econometrics and multi-regional input-output. Last but not least, the dataset used in this project significantly improves upon previous studies. Not only do the investigators rely on the most recent private R&D investment data from the US Patent and Trademark Office, but they also use the Consolidated Federal Funds Report of the Census Bureau to estimate, for the first time, the role of federally funded R&D investments on knowledge creation at the regional level. Overall, this project aims at showing where to maximize R&D investments and help regional governments tailor appropriate policies to promote knowledge creation. The broader impacts of this project are threefold: first, the thorough statistical approach used in this project will help local policymakers identify the key economic characteristics they should rely on to stimulate knowledge creation in their locality. Second, a clear estimation of the relative returns on public investments is essential to support evidence-based fiscal policy. The private and social returns on R&D investments evaluated in this work can thus be directly compared with the returns from other public investments such as education, transportation and defense, for instance. Finally, in addition to the usual scholarly publications and in-class presentations, the results of this project will be accessible online and for free in the frame of a dynamic WebGIS (Geographic Information System). Because it is able to give a large audience access to all the results, this dissemination method promotes transparency, objectivity and accountability in the research at hand.