The decline in public research and development (R&D) spending may be linked to a slowdown in productivity growth, raising questions about the implications of further budget cuts. Research from Fieldhouse indicates that significant reductions in funding for institutions like the National Institutes of Health (NIH) and the National Science Foundation (NSF) could result in measurable declines in U.S. productivity over the next several years.
Data shows that public funding for R&D has been on a gradual decline for decades, with federal investment at its lowest in 70 years, making up approximately 0.6% of the GDP. In contrast, business investments in R&D have increased significantly; in 2023, companies allocated about $700 billion to R&D, while the U.S. government spent $172 billion.
Although the argument exists that private companies are more efficient in conducting research, publicly funded research tends to yield greater long-term productivity growth, primarily due to its emphasis on fundamental science. A study by Arnaud Dyèvre from HEC Paris explores the effects of knowledge spillovers resulting from publicly funded R&D. His preliminary findings suggest that the impact of such spillovers on productivity growth is three times greater than that from private R&D funding.
Dyèvre notes that the current balance between governmental and private sector funding for R&D appears to be skewed, though he refrains from pinpointing exact percentages needed for each sector. This balance is a key consideration amid ongoing discussions about R&D funding.
In July, Open Philanthropy and the Alfred P. Sloan Foundation initiated a five-year project focused on R&D funding effectiveness, aiming to address questions about optimizing returns on research investments. Despite evidence suggesting a high return on R&D, details on the extent and types of funding needed remain unclear.
Source: https://www.technologyreview.com/2025/09/17/1123760/how-to-measure-the-returns-to-rd-spending/