Local Returns to Federal Innovation Investment: Evidence from the National Laboratories

Federal innovation investments generate large social returns, but whether they can seed new innovation ecosystems far from the technological frontier remains an open question. The US national laboratories offer an unusually informative setting: their locations were chosen for security and isolation rather than economic potential, and they combine large federal investments with decades of outcome data. Drawing on newly digitized historical records, we find that host counties experienced large and persistent gains in patenting by non-laboratory inventors, retail sales, income, and educational attainment relative to counterfactual counties. These effects grew over time; two decades after founding, every dollar of laboratory operating budgets was associated with over five dollars of additional local economic activity. The returns varied widely across laboratories: university-affiliated labs generated roughly 2.6 times the per-dollar spillovers of privately operated facilities. This variation suggests the importance of governance, publication norms, and personnel mobility in spreading
knowledge to local firms. We argue these gains reflected genuine productivity improvements rather than spatial reallocation: preexisting residents saw significant wage gains (about 25 percent for college-educated workers between 1940 and 1950), and the former collaborators of relocating scientists (perhaps the most likely group to be negatively impacted) show no detectable decline in productivity. Because the laboratories were not designed to maximize local development, these estimates likely represent a lower bound on what deliberately designed investments could achieve. The findings speak directly to current debates over place-based innovation policy, as governments worldwide commit tens of billions to regional clusters even as the US innovation system faces deep proposed cuts.