The Impact of Government Research and Development Spending and Other Factors on State Economic Development

Article excerpt

ABSTRACT

This article examines the effect of state government programs designed to enhance economic development through spending on research and development. Two theoretical perspectives are presented that offer opposing predictions on the possible effects of state government spending for economic development. The hypotheses tested suggest that the greater a state government's spending on research and development and research and development plant, the greater the state's per capita gross state products. Additional independent variables tested in subsequent hypotheses about economic development include the level of education of a state's population and an aspect of the state's infrastructure. The results suggest that state government spending on research and development has little impact on state economic development but that the level of education of a state's population and an aspect of the state's infrastructure do have moderate positive impacts. The results also hint at a pattern of increasing inequality among the states.

INTRODUCTION

This article evaluates the impact of programs designed in part to stimulate economic output. The specific focus is on spending by American state governments on research and development and research and development plant, and the effect of such spending on a measure of economic output at the same level. The theoretical underpinnings of this research include two perspectives: a "rational" or good government approach and a "power" or interest group approach offering different points of view on the likely efficacy of state economic development programs.

The article begins with a review of some of the factors that lead state governments to undertake economic development programs. In addition, this opening section sketches the two theoretical perspectives on the likely economic effects of state government spending for economic development, in particular, spending that is channeled through research and development ventures. This section also summarizes some of the prior research attempted to evaluate the economic effects of state's research and development initiatives. Subsequent sections discuss how the measures employed were constructed, the specific hypotheses framed, and the results of tests of three hypotheses. A final section offers a discussion and conclusions.

In the United States, state governments continue to be presumed to foster economic development, a situation which persists even in an era of moderate and sustained economic expansion. Part of the pressure derives from the ongoing competitive relationships among the states. For example, states which neglect their own economies find that other states may both be more successful in generating new business enterprises and in expanding existing business enterprises, and may also recruit existing businesses from them, damaging the popular standing of government officials in the former category of states. They can also erode the basis of tax revenues necessary for providing services in such states.

Part of the pressure derives from changes in state-federal relationships: the federal government, driven by its own "balance the budget" logic, is devolving responsibilities to the states while at the same time succeeding in substantially cutting federal funds flowing to the states. In addition, some of the factors which underlie economic development at the local (e.g., city, county) level (Wolman and Spitzley, 1996:117-119) are probably at work at the state Level as well. Thus, business interests may influence government officials to create economic development programs especially in the area of land development.

Furthermore, government officials may create such programs because of a political need to appear creative and because economic development programs tend to be popular with electorates. Finally, the increasing globalization of the economy provides yet additional impetus to state governments to tend to their economies (Clarke and Saiz, 1996). …