Frontier’s latest report, on behalf of the Department for Science, Innovation and Technology (DSIT), has just been published. We provide an up-to-date assessment of the economic and social returns to investment in Research and Development (R&D).
The work provides important insights for policy-makers in helping appraise the value of R&D investment, and is particularly relevant at time when the government is committed to increasing public investment in R&D to £20 billion by 2024-25. The returns to R&D include the private returns (benefits that accrue to the businesses making R&D investments), and social returns (benefits accruing to other businesses, or to wider society, for example through knowledge spillovers).
Our analysis draws on a comprehensive meta-analysis of studies which have estimated the returns to R&D published since 1980, comprising almost 900 estimates. This was complemented with a targeted search of the wider recent literature exploring aspects of the nature of the returns to R&D.
Some key findings and conclusions are:
- Our best estimate of the average private rate of return is around 20% per year. This suggests that a firm investing £1 in R&D can typically expect to see a return of 20 pence per year from the additional knowledge that is generated as a result.
- The evidence is consistent with the view that social returns exceed private returns. A conservative assessment, based on the highest quality studies, is that social returns are around twice as high as private returns on average.
- High quality quantitative evidence on the returns to R&D performed by the public sector is limited. The best estimates suggest a social rate of return of around 20%. It is, however, extremely challenging to quantify these returns as public R&D often supports early-stage research, or investments seeking to achieve societal benefits which can be hard to measure and value.
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