Perspectives from Around the World 188

Knowledge flows from public labs to private firms

Economist at Bank of France, Economist at Bank of France, Research associate

For Antonin BERGEAUD's full bio,

Research Economist at Institut des politiques publiques (IPP)

For Arthur GUILLOUZOUIC's full bio,

Emeric HENRY
Professor of Economics at Sciences-Po Paris - University

For Emeric HENRY's full bio,

Economist at The Institut des Politiques Publiques

For Clément MALGOUYRES's full bio,

How knowledge spillovers operate between academia and private firms remains an open question. This column exploits the Laboratoire d'Excellence, or LabEx, a large-scale funding programme of public research in France implemented in 2010–2011, to understand the spillover process. The authors find strong spillovers through the contracting channel, the mobility channel, and the informal channel, with the contracting channel playing the central role. As financing public research is an indirect way to spur private sector activity, comparing it with more direct instruments would be interesting.

In developed economies, public spending on R&D is sizeable, and a significant share goes to fund public research. It is, in part, founded on the idea that knowledge production will spur private activity and benefit the broader economy. We now have a deep understanding of how knowledge spillovers operate within academia (e.g. Waldinger 2012, Iaria et al. 2018). But we do not understand as well the transfers between academia and private firms, except for some causal evidence from certain sectors, as in Azoulay et al. (2019) for the pharmaceutical industry or evidence on universities impacting the local labour market, as in Hausman (2021).

There is even less evidence on the channels through which these spillovers operate, except for literature based on a large survey of managers (Cohen et al. 2002). To design effective public policies, it is essential to know whether the mobility of researchers between the public and the private sector is the key driver of spillovers or if they are more likely to operate through explicit collaborations between firms and public labs. These issues are also important to help firms more efficiently integrate public knowledge.

In Bergeaud et al. (2022), we shed light on the magnitude of the spillovers between the public and the private research sectors and on the channels through which these channels operate. To provide causal evidence, we exploit a large-scale funding program of public research in France implemented in 2010-2011, the Laboratoire d'Excellence (LabEx) programme. This policy initiative allocated €1.5 billion to 170 academic clusters (referred to as LabEx), bringing together public researchers from different research units, not necessarily from the same institution, planning to work together on a common theme.

This funding shock affected regions of France differentially since some areas had more clusters selected. Moreover, the shock also affected industries differentially since some industries were closer to the scientific theme of LabEx and in a better position to exploit their results. We propose a new measure to measure the proximity between public labs and private firms. The idea is to measure the distance between the science used by firms (papers cited in their patents) and the science produced by research groups. We can thus expect firms geographically and scientifically close to funded clusters to react to the shock. Our empirical analysis builds on this idea.

As shown in Figure 1, firms in the industry and location pairs that are more exposed to the funding shock significantly increase their employment in R&D after the start of the program, while before the shock, these firms appear comparable. The magnitude is large: a firm in the top quartile of exposure increases total spending on wages of R&D workers by more than 20% compared to the bottom quartile. These effects on R&D inputs in the private sector eventually translate into outputs. We observe the creation of new plants and the production of new patents in industries more exposed to the shock.

Figure 1 Effect of public funding on private spending on employment in R&D
Figure 1 Effect of public funding on private spending on employment in R&D
[Click to enlarge]
Figure 1 Effect of public funding on private spending on employment in R&D

From a policy perspective, it is important not only to know whether spillovers from public labs to private firms do exist, but also to understand how they materialise. There are three broad categories of channels that can be at work. First, spillovers could be due to direct collaborations between researchers in the academic cluster and the exposed firms (contracting channel). This involves subcontracting research by private firms, contracts signed for PhD supervision or for joint research projects. Second, they could result from the mobility of researchers from the public to the private sector (mobility channel), either to existing firms or through the creation of new firms. Third, spillovers could simply be due to informal contacts between researchers from the public and the private sectors (informal channel), for instance, during events organised by the cluster.

Launch reports written by the financed clusters suggest that all three channels are at play: 75% of the reports mention the contracting channel, while 52% mention the mobility channel, with a special focus on helping researchers to create spin-offs and encouraging the mobility of master and PhD students. We back up this exhaustive evidence that highlights the central role of the contracting channel with data on some specific components.

Using the same empirical strategy as in Figure 1, Figure 2 presents the results for different outcome variables capturing these different channels. We find evidence that firms more exposed to the shock start more PhD co-supervisions with public labs (panel a) and increase their outsourcing to the public research sector (panel b). Both these effects are consistent with the contracting channel being at play. We also find that researchers are more likely to move to the more exposed firms (panel c) and that these firms are more likely to hire fresh PhDs (panel d), evidence of the mobility channels. All channels thus seem at play, but the reports written by the funded units suggest a central role played by the contracting channel.

Figure 2 Effect of public funding on private spending on employment in R&D
Figure 2 Effect of public funding on private spending on employment in R&D
[Click to enlarge]

Our results therefore provide evidence of strong spillovers between public research institutions and private firms. Financing public research is, therefore, a way to spur private sector activity, be it indirect (as discussed in Bloom et al. 2019). It is interesting to compare this type of policy with more direct instruments, such as research tax credit programs. Tax credits are typically claimed on inputs in the R&D process, such as spending on employment in R&D, and can thus be claimed indiscriminately by firms, regardless of whether they efficiently use them. In fact, a common criticism is that even sectors which are not very research-intensive benefit from such programs. On the contrary, firms that manage to exploit spillovers from the public sector are by construction research-intensive. Financing public research can thus be a tool to channel resources to private firms that can efficiently use them. Understanding how these different public policy instruments should be optimally combined remains a key open question.

This article first appeared on VoxEU on October 19, 2022. Reproduced with permission.

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November 14, 2022

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