R&D Investments: Finding and Creating Growth Amid a Slowdown

As inflation and interest rate hikes slow US economic growth and geopolitics complicate trading relationships, businesses and governments should still continue to ramp up investments in R&D. Improving and expanding basic research funding in the US is vital to drive not only higher private investment now but also faster real GDP growth and labor productivity in the future. Additionally, R&D can help the US become even more competitive globally and stay ahead of the technological curve. 

Indeed, basic research provides benefits throughout the economy, as knowledge gained in basic research can be used productively by entrepreneurial businesses. Basic research can result in commercial applications and expand total factor productivity (TFP)^[1] over the longer run—a key ingredient to long-term growth. 

We provide policy recommendations for how US governments and businesses can work together to support R&D and raise current and future benefits to the economy from such investments. These lessons can also be useful for other economies wishing to enhance their technological prowess.

Focus 1. What Governments Can Do on Their Own

• Consider basic research proposals that have the potential to ensure our national security and public health and enhance our economic competitiveness, especially in research areas necessary for economic growth in the near to medium term, including further investments in critical technologies such as advanced materials manufacturing, biotech, power-storage solutions, semiconductors, AI, quantum computing, and advanced cyber networking.
• While accepting that some basic research projects inevitably fail, carefully evaluate the potential risks, costs, and returns of alternative projects so the best ideas are funded with available resources.

Focus 2. What Governments and Firms Can Do Together

• Leverage the nation’s innovation model based on public-private partnerships to foster the creation of new technologies and effectively diffuse investments across geographies.
• Develop a highly skilled science and engineering workforce and facilitate access to global talent by investing in STEM education, building new pathways into STEM careers, and promoting skilled-worker immigration.

For a deeper dive into policy perspectives, see Back to Basic Research: An R&D Investment Plan to Enhance US Competitiveness or watch the on-demand webcast. 

[1] Total factor productivity (TFP) is the third of the three components of future GDP growth. The other two are contributions from capital and labor. TFP is the sum of past investments in R&D, technology, infrastructure, and human capital, as well as the absorption of new technologies into consumer and business uses.