Universities are Innovation Engines: New Evidence

University spinoffs more innovative, more successful than comparable firms

A new working paper by Swedish economist Andreas Stephan asks whether startups that were born as spinoffs from public universities are more innovative than similar, non-spinoff firms. Using a 2004 survey of East-German firms, Stephan compares the innovativeness of firms as measured by their patent applications and the originality of their patents. Even compared to firms of a similar age, industry, and location, the paper finds that university spinoffs do a better job of innovating.

The obvious lesson here for economic policy is that universities are studying useful things, and that we should have policies that encourage their transition from academic papers to real-world businesses. Business incubation has been on the U.S. national agenda for decades—since at least the passing of the 1980 Bayh-Dole Act—but there is much more that we can do.

For instance, Stephan finds that spinoff firms were more successful due to their collaboration, their proximity to universities, and their ability to get public research grant funding. All three of these traits are easy to translate into policy. Stephan also notes that even those firms that were successful at getting funding said that a lack of funding held back their research and development activities. Public support in the United States for university research and also private grants has been decreasing considerably over the past several years and continues to do so. If we are going to stay on top of innovation we need increased public support, and we also need to continually refine and improve the way we bring innovative ideas to market.