Public Economics Research

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    The Domino Effect of Federal Research Funding
    (2015-10-08)
    Scholarship on research and development (R&D) funding has focused primarily on the relationship between Federal and Industry or, more comprehensively, non-Federal funding without disentangling the various sources of additional research support that include Nonprofits and State and Local governments. As local institutions along with philanthropy and foundation funding take on greater prominence, there is an expectation that Federal funding is less important. This paper extends our understanding of R&D support by considering a greater range of non-Federal sources of R&D for academic fields. We examine whether Federal R&D investment serves as a complement or substitute for State and Local government, Nonprofit, and Industry R&D investment, respectively. We analyze the population of academic science and engineering fields at U.S. doctoral-granting universities using a two-stage model that instruments for prior levels of the non-Federal funding source and includes academic field fixed effects. We estimate that a 1% increase in federal R&D funding is associated with a 0.411% increase in Nonprofit R&D funding, a 0.217% increase in State and Local R&D funding, and a 0.468% increase in Industry R&D funding. Results indicate that Federal funding plays a fundamental role in inducing complementary investments from other funding sources, with impacts varying across broad academic fields, by departmental research capacity, and institutional control.