This paper presents the economic framework supporting the conclusion that US federal programmes, such as the Bayh–Dole Act of 1980, which increase the pay-off from research and development funding (R&D) can be effective agents of economic growth. A review of the literature in this field provides evidence that links investment in research to economic growth. By modifying the traditional Cobb–Douglas production function to include a research and development input, in addition to the capital and labour input, this study defines how multi-factor productivity (MFP) growth is controlled by the interaction of R&D and its commercialization. The combined contribution to MFP growth is defined as the product of the elasticity of output for R&D and the rate of growth of the R&D input. Evidence supporting the importance of the elasticity component for multi-factor productivity growth is presented, and the study then concludes that programmes to increase the elasticity of output for R&D – what is referred to as increasing the pay-off from R&D – may be an effective means of realizing a larger return on the investment in R&D.
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