Fact of the Week: A Dollar of Government Investment in Innovation Produces $4 to $20 in Social Returns

Kevin Gawora November 9, 2020
November 9, 2020

(Ed. Note: The “Innovation Fact of the Week” appears as a regular feature in each edition of ITIF’s weekly email newsletter. Sign up today.)

Source: Benjamin Jones and Lawrence Summers, “A Calculation of the Social Returns to Innovation,” National Bureau of Economic Research Working Paper, Sep. 2020.

Commentary: Innovation is key to long-run economic growth, as new ideas increase workplace productivity, lower costs for consumers, and raise profits for firms. But innovation also provides indirect benefits due to spillovers, which leads to increased social returns, such as higher productivity in downstream firms, and further innovations that build off existing ones. New research underscores this. By accounting for spillovers that were previously difficult to quantify, the authors find that the returns are larger than previous studies have estimated. At the low end, taking into account new capital investment resulting from innovation and learning by doing, the study finds that every dollar invested in innovation returns four dollars in social benefits. But these social returns compound as much as 2,000 percent (or $20 for every dollar invested) when considering health benefits, international spillovers, and if new firm creation drives the bulk of productivity gains that result from new ideas.