The case of the interrupting funder: dynamic effects of R&D funding and patenting in US universities

Federal funding for biomedical research at U.S. universities increases universities' research funding from non-federal sources. Most previous research on the relationship between research and development (R&D) expenditures and patenting has considered aggregate R&D expenditures or funding contributed from a single source. However, the dynamic relationships between federal and non-federal R&D funding may confound single-source funding estimates. This paper uses a novel dataset with university patents for drug and medical inventions, non-self-citations to those patents in subsequent drug and medical inventions' patent applications, and R&D expenditures by funding source for 16 U.S. research universities, with a panel vector autoregression (PVAR) methodology to account for endogeneity and dynamic effects. Results confirm prior research findings showing that increases in federal research funding yield subsequent increases in non-federal funding. This subsequent receipt of non-federal research funding significantly decreases universities' number of patents filed. Results also suggest that federal R&D funding may contribute to universities' patenting more useful (or more broadly used) inventions.