Back to Basics: Private and Public Investment in Basic R&D and Macroeconomic Growth

Serrano-Velarde, Nicolas (2012) Back to Basics: Private and Public Investment in Basic R&D and Macroeconomic Growth. In: Einaudi Institute for Economics and Finance (EIEF): 2nd Workshop on Structural Approaches to Productivity and Industrial Dynamics, 12/04/2012-13/04/2012, Rome. (Unpublished)

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Abstract

This paper introduces endogenous technical change through basic and applied research in a growth model. Basic research differs from applied research in two significant ways. First, significant advances in technological knowledge come through basic research rather than applied research. Second, these significant advances could potentially be applicable to multiple industries. Since these applications are not immediate, the innovating firm cannot exploit all the benefits of the basic innovations for production. We analyze the impact of this appropriability problem on firms' basic research incentives in an endogenous growth framework with private firms and an academic sector. After characterizing the equilibrium, we estimate our model using micro level data on research expenditures and behavior by French firms. We then decompose the aggregate growth by the source and type of innovation. Moreover, we quantitatively document the size of the underinvestment in basic research and consider various research policies to alleviate this inefficiency. Our analysis highlights the need for devoting a larger fraction of GDP for basic academic research, as well as higher subsidy rates for private research.

Item Type: Conference or Workshop Item (Paper)
Keywords: Innovation, basic research, applied research, research and development, government spending, endogenous growth, spillover.
Subject(s): Taxation
Centre: Oxford University Centre for Business Taxation
Date Deposited: 23 Aug 2012 11:00
Last Modified: 23 Oct 2015 14:07
URI: http://eureka.sbs.ox.ac.uk/id/eprint/4175

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