FMM Working Paper

: Directed Innovation Policies and the Supermultiplier: New Evidence

This paper investigates the macroeconomic effects of public R&D investment in the US economy from 1947 to 2018, employing alternative empirical approaches based on Structural VARs, pure shocks derived from a counterfactual VAR, and Instrumental-Variable Local Projections. The analysis provides robust evidence consistent with the findings of Deleidi and Mazzucato (2021), confirming that public R&D exerts strong and persistent expansionary effects on economic activity. Examining the fiscal policy transmission mechanisms, the results indicate that public R&D generates significant crowding-in effects on private R&D, non-residential investment, and consumption, thereby supporting the existence of a Supermultiplier effect. When total public R&D is broken down into military and civil components, and pure shocks are estimated, both spending categories yield statistically similar macroeconomic effects. Finally, sub-sample analyses confirm our findings and show that the magnitude of public R&D multipliers remains broadly comparable over time. Overall, the findings highlight the macroeconomic importance of public R&D as an effective tool for sustaining long-term economic growth.

Keywords: Public R&D; Fiscal multipliers; Mission-Oriented Innovation policy; Structural VAR; Local projections