Internal rates of return for public R&D from VECM estimates for 17 OECD Countries

Abstract

AbstractPublic R&D stimulates domestic private and foreign private and public R&D, together enhancing technical change and thereby GDP. In this paper, we evaluate vector-error-correction model (VECM) estimations and simulations of a companion paper in regard to internal rates of return (and related aspects) to additional public R&D of OECD countries and compare them to the macroeconomic literature. We show (i) internal rates of return to public R&D shocks, and (ii) the related payback periods, gain/GDP ratios, and sums of discounted (at 4%) gains. Fourteen of 17 countries show high internal rates of return, short payback periods, and high gains/GDP ratios from positive public R&D shocks if projects are stopped when gains get negative. Three countries show crowding-out effects and require (initial) reductions of public R&D before showing positive results.