This brief examination of the role of federal R&D expenditures in ex-
plaining wealth creation is merely an introduction to an important issue.
The addition of federally funded R&D to a firm’s own R&D lends support
to the perfect markets hypothesis. This suggests that federal support for in-
dustrial R&D tends to reduce gaps between social and private returns to
R&D (Mansfield 1981, 1984). Much more work is needed on this impor-
tant issue.^14
There seems to be little doubt that the firm-aggregate Compustat and
NSF/Census data are not the only data necessary to examine the strategic
value of industrial R&D. Industrial competitiveness depends on the specific
product-market segments toward which industrial R&D is directed, not
simply the aggregate level of R&D in firms that are nominally classified by
an aggregate SIC code. The large firm’s financial decisions, which are seen
in the aggregate in Compustat and NSF/Census data, reflect a composite of
operating-level decisions associated with specific lines of business. The in-
clusion of the Federal Trade Commission (FTC) Line-of-Business database
(1974–1977) in the analysis would enable an examination of the impact of
R&D strategic focus (and other financial decisions) on stock market values.
This type of analysis will set the stage for the study of some of the more mi-
cro aspects of the NSF/Census database, such as the mix of R&D activities,
its structure by field of science, and employment patterns of science and en-
gineering personnel.
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