What drives innovation? Lessons from COVID-19 R&D

This paper studies the global R&D effort to fight the deadliest diseases. We find: (1) the elasticity of R&D effort with respect to market size is about 1/2 in the cross-section of diseases; (2) given this elasticity, the R&D response to COVID-19 has been 4 to 26 times greater than that implied by its market size; (3) the aggregate short-term elasticity of science and innovation can be very large, as demonstrated by the aggregate flow of clinical trials increasing by 38% in 2020, with limited crowding out of trials for non-COVID diseases; and (4) public institutions and government-led incentives were a key driver of the COVID-19 R&D effort—with public research institutions accounting for 70 percent of all COVID-19 clinical trials globally. Overall, our work suggests that leveraging early-stage incentives, non-monetary incentives, and public institutions may be important for scaling up global innovation.