Estimating Long-Term Economic Returns of NIH Funding on Output in the Biosciences
Aug 31, 2012
Publisher: Milken Institute

Advances in biomedical research have spurred dramatic improvements in both human and economic health. Between 1950 and 2009, life expectancy in the United States has increased 10 years, and since 1970, this increase in longevity has produced a net national gain of $61 trillion in "social value," defined as the value of a lifetime expected utility.

All this can be traced back to innovations in research, discovery, diagnostics and therapies - and strong federal policy positions that have pushed the U.S. to the forefront of biomedical R&D. An estimated 40 percent of U.S. medical research is federally funded.

The benefit from every dollar invested by National Institutes of Health (NIH) outweighs the cost by many times. When we consider the economic value realized as a result of decrease in mortality and morbidity of all other diseases, the direct and indirect effects (such as increases in work-related productivity) are phenomenal.

NIH funding has also played a major role in boosting economic growth and contributing to the growth of bioscience clusters - geographic concentrations of related industries or firms. An initial round of NIH funding encourages the hiring of more scientists and engineers, which boosts the bioscience industry's output. As production increases, private companies absorb information and invest more in R&D, which further boosts the economy. This growth attract supporting industries and their own allied industries. Eventually the effect translates into higher economic activity for the region. It may take years to realize the actual long-term effect of NIH funding on the economy.

A work in progress, this paper establishes the long-term relationship between NIH funding and the size of the bioscience industry at the state level. The preliminary results show that $1.00 in NIH funding can generate at least $1.70 of output in the bioscience industry. The long-term effects may be as high as $3.20 for every $1.00 spent, depending on the model specification. Thus, every NIH dollar that goes into the bioscience not only benefits crucial research, but the broader economy as well.