University R&D Funding Strategies in a Changing Federal Funding Environment

This paper evaluates how changes in US National Institutes of Health (NIH) funding levels affected US universities' total biomedical R&D efforts, over a period of dramatic change in the federal funding environment. Instrumental variables estimation reveals that during the NIH budget doubling period (1998-2003), each federal dollar that US universities received spurred an additional $ 0.26 in research support from non-federal sources, with stronger complementarity found among historically less-research-intensive institutions. However, in the more competitive post-doubling environment (2006 onwards), the more research-intensive PhD-granting universities substituted funding from non-federal sources to maintain stable levels of R&D expenditures. In contrast, at non-PhD-granting and historically less-research-intensive institutions, total R&D funding and expenditures declined overall with reduced availability of federal funds. However, the effect of successful federal applications on subsequent non-federal investment remained significant and positive for this latter group, suggesting federal R&D funding may play an important signaling role.