The impact of public funding on private-sector innovation from a perspective of knowledge spillover network in biopharmaceutical field– Evidence from NIH experience

Abstract

This dissertation investigates the impact of the public funding system on private sector innovation in the biopharmaceutical industry, emphasizing the mechanisms that govern the knowledge spillovers. While prior studies concede the spillovers from publicly funded research, the dynamic mechanisms through which these public goods are deconstructed, grafted and recombined toward non-participant company‐level innovations remain a Blackbox. This study addresses that gap by regarding public funding not merely as a financial input but as an organizer of knowledge production, with knowledge spillover networks serving as the central channel that links publicly funded science to firm invention. Four complimentary methods are implemented to reveal this mechanism. (1) First, a complex network framework based on bio-entity correlation mapping reveals that the spillover of publicly funded knowledge follows non-linear, decentralized pathways that are determined by the positional effects of knowledge actors within the network. (2) a multidimensional graphical time-series causal inference framework—integrating Granger causality, Autoregressive Distributed Lag model (ARDL) analysis, and exponential random graph models (ERGM)—indicates that the impact of public funding unfolds as a heterogeneous, time-dependent and positive process, encompassing short-term network expansion, long-term equilibrium, and firm-specific absorptive dynamics. (3) a knowledge-backbone analysis focuses on the specific content of spillovers, showing how exploratory and loosely coupled public research side progressively converges with the more application-oriented and exploit oriented patenting activities of firms. This convergence can be traced through a shared ratio of bio-entities that signal distinct stages of knowledge translation during commercial development. (4) To validate the previous mechanism, a broader empirical case study of XBI-listed firms reveals that knowledge, correlated with high cumulative costs via a spillover network is particularly influential in promoting non-recipient innovation, and that firm size significantly shapes the capacity to absorb and exploit these spillovers. This dissertation reframes the role of public funding in private-sector innovation as a multi-layered, time-sensitive and network-mediated process rather than a simple input–output relationship. Its enduring value lies not only in immediate outputs, but in the sustained supply of combinable knowledge components that firms can integrate long after funding officially ends. The study further argues that policy makers should move toward a strategic network management approach. Policy could prioritize projects with central or strategically important positions in knowledge networks, monitor the sustained long-term cumulative effects, and apply fine-grained monitoring frameworks to track knowledge maturation and redirect resources to areas of highest translational potential. By advancing theories of innovation system and knowledge spillovers, this work offers a mechanism-based policy framework for building more efficient and inclusive innovation systems.