Many established firms have substantially reduced their engagement in upstream scientific research since the 1980s. We examine how two components of public science – scientific knowledge and human capital – affect corporate investment in research and innovation. Empirically, we link firms with public science that is relevant to their innovation and trace funding sources. Identification is based on firm-specific exposure to (i) changes in federal agency R&D budgets and (ii) windfall funding from congressional appropriations. We find that public knowledge crowds out internal research, except for firms at the technology frontier (“frontier firms”), which continue to invest in internal research even when public knowledge relevant to their innovation is abundant. Second, human capital increases internal research and innovation, especially in frontier firms. We conclude that while the rise in public science can partly explain the decline in corporate science, the effect has been uneven across firms, affecting non-frontier firms more than frontier firms, and potentially amplifying the gap between them.
Contact person: Michael Rose
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