June 2007 A Strategic Assessment of the Economic Benefits of Investments in Research in Arizona A Strategic Assessment of the Economic Benefits of Investments in Research in Arizona June 2007 F O N U N D A T I O Special thanks to the Stardust Foundation for funding this report This report is the product of a collaborative effort between The L. William Seidman Research Institute W. P. Carey School of Business Arizona State University and The Economic & Business Research Center Eller College of Management The University of Arizona Authors: Alberta Charney, Ph.D. [email protected] Kent Hill, Ph.D. [email protected] Dennis Hoffman, Ph.D. [email protected] Jose Lobo, Ph.D. [email protected] Maile Nadelhoffer, M.S., M.A. [email protected] ACKNOWLEDGEMENTS This report is by no means the first articulation of the benefits of research in Arizona. Among these efforts is an extensive list of publications from the Morrison Institute for Public Policy and the work of the Battelle Memorial Institute, Flinn Foundation, Arizona Board of Regents, Arizona Department of Commerce and many others. We gratefully acknowledge these authors and sponsors of the literature, which provides the backdrop for our undertaking. Our intent is to add to this body of literature by investigating the rationale for research investments across the academic literature, examining the assembled empirical evidence on the issue, conducting independent statistical analysis, and surveying what other regions, states and countries are doing to increase the pace of investment in research. The impact of research on productivity and economic activity — how it works, how it’s measured — is a fascinating topic that has captured the interest of many authors. This report has clearly benefited from this extensive body of literature. We also acknowledge the broad academic community of scholars and journal editors that provided the basis for much of our analysis. We want to recognize the technical staff members who made this report possible: Tracy Clark, M.S., Nettie Klingler, M.S., and Tom Rex, M.B.A., of Arizona State University, and Valorie H. Rice, M.L.S., of The University of Arizona. Finally, we thank Science Foundation Arizona (SFAz) for sponsoring this strategic assessment of research investments in Arizona, and the Stardust Foundation, for funding this effort on behalf of SFAz. Contents EXECUTIVE SUMMARY..........................................................................................................................i CHAPTER : THE ECONOMIC CASE FOR SCIENCE FOUNDATION ARIZONA (SFAz)............................. A Summary of the Findings in Chapter ............................................................................................... An Overview of SFAz: Structure and Programs......................................................................................3 The Rationale for Local Industrial Policy in a Knowledge Economy ......................................................6 Importance of Universities in Determining the Location of Innovative Activity.......................................8 SFAz as a State Economic Development Program................................................................................0 Evidence of Local Economic Development from University Research....................................................11 Conditions Favoring the Localization of Benefits from University Research..........................................4 Rating the Phoenix Metropolitan Area................................................................................................7 Cautionary Remarks............................................................................................................................9 References..........................................................................................................................................20 CHAPTER 2: ECONOMIC EFFECTS OF UNIVERSITY RESEARCH..........................................................23 A Summary of the Findings in Chapter 2.............................................................................................23 Input-Output “Multiplier” Impacts of Research Expenditures...............................................................24 Patents, Royalties, Start-Ups and Licenses Connected to Universities.............................................25 University Spin-Offs and Technology Licensees: Utah Case Study.......................................................26 Spillovers from University Research to Private-Sector Research and Development...............................27 New Firm Formation, Human Capital and University Research..............................................................29 University Research, Human Capital, Growth Rates and Other Economic Measures...............................30 Empirical Evidence from Other Countries.............................................................................................3 Summary and Conclusions....................................................................................................................32 References...........................................................................................................................................34 CHAPTER 3: RESEARCH UNIVERSITY EXPENDITURES AND ECONOMIC ACTIVITY..............................37 A Summary of the Findings in Chapter 3.............................................................................................37 University Research Expenditures and Economic Performance by Urban Area......................................38 The Role of Patents as a Channel of Research Impact..........................................................................49 Conclusions........................................................................................................................................5 References..........................................................................................................................................53 CHAPTER 4: IRELAND AND SCIENCE FOUNDATION IRELAND (SFI): LESSONS FOR SFAz..................55 A Summary of the Findings in Chapter 4.............................................................................................55 The Origins of SFI...............................................................................................................................56 Science Foundation Ireland.................................................................................................................58 An International Review of SFI............................................................................................................6 Progress in Ireland..............................................................................................................................63 A Comparison of Ireland with Arizona.................................................................................................64 The Relevance of SFI to SFAz .............................................................................................................68 References..........................................................................................................................................7 CHAPTER 5: INVENTORY OF INITIATIVES IN OTHER STATES DESIGNED TO PROMOTE RESEARCH AND INNOVATION.............................................................................................................................73 A Summary of the Findings in Chapter 5.............................................................................................73 Background........................................................................................................................................74 An Inventory of Research Initiatives by State .......................................................................................75 A Closer Look at Some of the Initiatives.............................................................................................92 A Case Study of New York State........................................................................................................00 A Summary of the Findings for the Case Study..................................................................................00 History and Description of Recent Science, Technology and Academic Research Initiatives................00 Evidence of Economic Impacts..........................................................................................................0 References........................................................................................................................................04 Appendix: Science, Technology and Academic Research Programs in New York.................................05 BIOGRAPHICAL PROFILES OF THE AUTHORS...................................................................................113 TABLES . Science Foundation Arizona (SFAz): Preliminary Funding Schedule....................................................5 2. Electronics Industry in Silicon Valley and Route 28.........................................................................11 3. Science and Engineering Employment in the 25 Largest Metropolitan Areas....................................8 4. Research Institution Activities per $0 Million of Research Expenditures..........................................26 5. Descriptive Economic Statistics for Urban Areas with and without Research Universities, 2004........40 6. Cost-of-Living-Adjusted Average