R&D’s Economic Ripple Effect

Published August 1, 2005

The economic contribution of R&D spending in Washington state and elsewhere consists of three types of impacts: Direct, indirect, and induced.

  • The direct impact represents the economic impact directly attributable to the biotech firms: local purchases and employee compensation. For example, in the pharmaceutical or biotech industries, this can include spending on legal services to secure patents.
  • The indirect impact represents the spending done by other businesses supplying the goods and services demanded by the industry. For example, the spending done by a local law firm as a result of being hired by a biotech firm creates employment and income for the law firms’ vendors.
  • Finally, the induced impact refers to the income and employment created as a result of the spending done by the employees of the biotech industry, its intermediate suppliers, and their vendors. Restaurants, real estate agents, gasoline stations, etc. all benefit from the local spending done by employees.

— Douglas Giuffre