University Research and Development Impacts: How Good Science Generates Good Business

Researchers have known for years that regions with strong universities tend to be more prosperous and innovative. After all, there’s a reason why many of America’s leading technology companies emerged out of Silicon Valley (home of Stanford University) and Boston (home of Harvard and MIT, among others).

We can now add fresh and compelling evidence to this claim, thanks to a new study by Bruce Kirchhoff and Catherine Armington, The Influence of R & D Expenditures on New Firm Formation and Economic Growth, funded by the U.S. Small Business Administration, the Ewing Marion Kauffman Foundation, and the National Commission on Entrepreneurship.

Evidence for the power of R&D spending is clear. We know that such spending increases innovation, competitiveness, and scientific advancement. But this new study confirms that such spending also has a strong effect on start-up business activity. It finds that research and development expenditures lead to an increase in the number of new firms in the community surrounding a university.

One common criticism of university research is that it takes too long. In other words, technology transfer and the creation of new market opportunities often occur years after research funds are expended. This report dispels that notion. The authors find that the lag time between the investment of research and development dollars and economic growth is shorter than previously expected. A significant number of new firms spring up within the first year after the funding and the growth trend continues for at least five years, albeit at a lower rate after the first year. The positive impact emerges not only in the form of new products and services, but also via increased employment in the firms that support the innovative businesses and their families.

A Brief Review of Some Academic Underpinnings

The relationship between innovation and economic growth has been well-documented over the past several decades beginning with Joseph Schumpeter’s notion of "creative destruction." He argued that newly-formed, independently-owned firms commercialize inventions that increase overall demand and thereby generate economic growth. These firms "destroy" existing markets structures and redistribute wealth among the remaining firms in the market. This theory and later findings confirm that while smaller firms cannot make the high level of investment that larger firms make, their ability to commercialize technology and create new markets causes them to generate more innovations per R & D dollar than larger firms. The knowledge generated by the R & D process – both from corporate as well as university R & D dollars spills over from one firm to another and these spillovers lead to innovative clustering that is prevalent in R & D intensive industries. These clusters form the base of a networked entrepreneurial community.

While the connection between university research funding and economic growth makes a good deal of common sense, researchers often lacked empirical data to support this claim. The Census Bureau’s database (the Longitudinal Establishment and Enterprise Microdata Set) made it possible to study all regions of the U.S. and to assess the impact of universities, such as the University of Iowa at Iowa City, the University of Alabama at Tuscaloosa or the University of Missouri at Rolla, located in more rural areas.

Another Implication for Entrepreneurs

Universities have long been touted as an important entrepreneurial resource for a community. This study lends additional academic credence to this perception. But thinking of universities only in terms of research dollars is a dangerously narrow view. When entrepreneurs judge whether their community is a good place to do business, many of the factors they consider most important are often tied to a local university. The university’s role as a "talent magnet" probably ranks as its most important contribution to entrepreneurial development. Yet other roles also matter. Entrepreneurs across the nation agree that the existence and strength of local entrepreneurial networks often determines their personal and community success. Research and development dollars are only the beginning of a whole range of university support for entrepreneurs. Universities often – and could more often – help jumpstart entrepreneurial networks. While no one would try and minimize the role of research funding, attendant entrepreneurial network support can follow, including: forming incubators to help commercialize new ideas; becoming partners with entrepreneurs by taking an equity stake in their new, innovative ventures: providing leadership and mentoring; and, perhaps as important as any other activity, publicly supporting their local entrepreneurs.

This study is one more piece of evidence that helps end the clichéd split between "town and gown." The university community and the entrepreneurial community working together is a powerful force to help start new businesses, generate new, good jobs, and build community wealth.

Please go to: for the complete report.

Sorry, we couldn't find any posts. Please try a different search.

Leave a Comment

You must be logged in to post a comment.