Understanding the returns to R&D

Frontier’s latest report, on behalf of the Department for Science, Innovation and Technology (DSIT), has just been published. We provide an up-to-date assessment of the economic and social returns to investment in Research and Development (R&D).

The work provides important insights for policy-makers in helping appraise the value of R&D investment, and is particularly relevant at time when the government is committed to increasing public investment in R&D to £20 billion by 2024-25. The returns to R&D include the private returns (benefits that accrue to the businesses making R&D investments), and social returns (benefits accruing to other businesses, or to wider society, for example through knowledge spillovers).

Our analysis draws on a comprehensive meta-analysis of studies which have estimated the returns to R&D published since 1980, comprising almost 900 estimates. This was complemented with a targeted search of the wider recent literature exploring aspects of the nature of the returns to R&D.

Some key findings and conclusions are:

  • Our best estimate of the average private rate of return is around 20% per year. This suggests that a firm investing £1 in R&D can typically expect to see a return of 20 pence per year from the additional knowledge that is generated as a result.
  • The evidence is consistent with the view that social returns exceed private returns. A conservative assessment, based on the highest quality studies, is that social returns are around twice as high as private returns on average.
  • High quality quantitative evidence on the returns to R&D performed by the public sector is limited. The best estimates suggest a social rate of return of around 20%. It is, however, extremely challenging to quantify these returns as public R&D often supports early-stage research, or investments seeking to achieve societal benefits which can be hard to measure and value.

 Please click here to read the full report. An accompanying spreadsheet detailing estimates from the literature used to inform the report can be found here.

For more information, please contact us on media@frontier-economics.com or at  +44 (0) 20 7031 7000.

Rate of return