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Undergraduate Economic Review

Abstract

The United States invests more into basic medical research than any other country. This research, mostly done at medical schools, leads to medical technology patented by private firms through a phenomenon known as knowledge spillover. In light of this relationship, this thesis will investigate the relationship between the public investments in the basic medical research sector and the resulting effect on medical patents, contingent on geographic localization with state-level data. It is hypothesized that the larger the investments awarded to basic medical research organizations, the greater the number of medical patents within the state. Quantifying this relationship has important implications for modeling change, economic growth and science policies.

The proposed model relates the number of medical patents per year in a given state, the dependent variable, as a function of the following independent variables: National Institutes of Health (NIH) funding, National Science Foundation (NSF) funding, the number of civilian scientists and engineers within the state, and a state-specific research productivity parameter. The model used is similar to Jaffe (1989) but differs as this relationship focuses on different independent variables. The data come from a variety of sources including Jaffe and Trajtenberg (2002), the NIH, and the NSF. These data points will be used to run different regression analyses to test the relationship in question.

With the regression analysis and time lag adjustments, it is anticipated that the number of patents per year in a given state will be positively correlated with the number of scientist and engineers and the amount of medical research funding allotted to each state. The performed regressions support this hypothesis and resulted in statistically significant coefficients. This relationship will also evaluate the economic aspect of medical research and determine the effect of knowledge spillover from medical institutions to nearby private inventors. Ultimately, this may allow for more precise institutional and

geographical allocation of research investments for the purpose of achieving more medical innovations, thus advancing the field of medicine as a whole.

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