The economic impact of licensed commercialized inventions originating in university research

Abstract

The purpose of this article is to estimate quantitatively the contribution that university licensing makes to the national U.S. economy. As regions and nations face increased economic problems, they seek ways to augment opportunities for economic growth and to identify areas where public funding can be cut. It is now well-recognized that the research university can be a significant engine of economic growth and job creation. University research and research-related activities contribute in many important ways to modern economies: notably through increased productivity of applied R&D in industry due to university-developed new knowledge and technical know-how; provision of highly valued human capital embodied in faculty and students; development of equipment and instrumentation used by industry in production and research; and creation of concepts and prototypes for new products and processes, which may have some unexpected and large social and economic impacts. Yet clear documentation of the proportional contributions these make to economic growth remains elusive. This article provides detailed estimates of the economic impact on the U.S. national economy of one core university activity – licensing of university inventions to industry.Our approach combines licensing data for U.S. universities with national input–output (I–O) model coefficients and provides more valid and complete estimates of the national economic impacts of university licensing of intellectual property than have previously been available. Our results estimate national economic impact expressed as annual increases in gross domestic product (GDP), in total industry output, and employment generated over a 15-year period.Summing over the entire 15 years for which we have data – 1996–2010, we estimate that assuming no product substitution effects and a 2–10% royalty fee, the total contribution of university licensing to gross industry output is at least $162.1 billion and as much as $686.9 billion (2005 dollars); estimates based on 5% royalty rates yields an estimated impact of $293.3 billion (2005 dollars) over the period.Assuming 2% royalty fees and no product substitution effects, we estimate that over a 15-year period, university licensing agreements based on product sales contributed at least $70.5 billion and as much as $277.6 billion (2005 dollars) to the U.S. GDP; with a moderately conservative estimate based on 5% royalty rates, such agreements contributed more than $122.2 billion (2005 dollars).The I–O model also calculates the number of jobs (person-years of employment) directly created or supported per million dollars of final purchases. Estimates of the total number of additional jobs created as a function of year due to university-licensed products (assuming no product substitution effects) ranged from about 7000 jobs in 1996 to 23,000 in 2010, or more than 277,000 person-years of employment over the entire 15-year period.Because of uncertainty, we also provide estimates of the economic impact of university licensing income based on a range of product substitution rates—5%, 10% and 50%. The magnitude of the estimated impact depends significantly on the assumptions made, for example the royalty fees and substitution rates, but even the most conservative yet reasonable assumptions yield estimates of very large impacts on GDP, industry output, and employment.Major discoveries emanating from academic and/or publicly-funded research have had enormous global economic and social impacts that are obvious but difficult to predict and quantify (e.g., Google, the World Wide Web, nanotechnologies, etc.). Although this article examines the economic impact of only a select technology transfer activity, it nevertheless offers quantitative evidence that the economic impact of university research and technology transfer activities is significant.