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Hierarchical Growth: Basic and Applied Research

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  • Amon, Christian
  • Gersbach, Hans
  • Sorger, Gerhard

Abstract

We develop a model that incorporates salient features of growth in modern economies. We combine the expanding-variety growth model through horizontal innovations with a hierarchy of basic and applied research. The former extends the knowledge base, while the latter commercializes it. Two-way spillovers reinforce the productivity of research in each sector. We establish the existence of balanced growth paths. Along such paths the stock of ideas and the stock of commercialized blueprints for intermediate goods grow with the same rate. Basic research is a necessary and sufficient condition for economic growth. We show that there can be two different facets of growth in the economy. First, growth may be entirely shaped by investments in basic research if applied research operates at the knowledge frontier. Second, long-run growth may be shaped by both basic and applied research and growth can be further stimulated by research subsidies. We illustrate different types of growth processes by examples and polar cases when only upward or downward spillovers between basic and applied research are present.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 7950.

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Date of creation: Aug 2010
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Handle: RePEc:cpr:ceprdp:7950

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Keywords: Applied research; Basic research; Commercialization; Hierarchical economic growth; Knowledge base;

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Citations

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Cited by:
  1. Prettner, Klaus, 2012. "Public education and economic prosperity: Semi-endogenous growth revisited," ECON WPS - Vienna University of Technology Working Papers in Economic Theory and Policy 02/2012, Vienna University of Technology, Institute for Mathematical Methods in Economics, Research Group Economics (ECON).
  2. Chu, Angus C. & Cozzi, Guido & Galli, Silvia, 2010. "Does intellectual monopoly stimulate or stifle innovation?," MPRA Paper 29061, University Library of Munich, Germany.
  3. De Fraja, Gianni, 2011. "A Theoretical Analysis of Public Funding for Research," CEPR Discussion Papers 8442, C.E.P.R. Discussion Papers.
  4. Broberg, J. Christian & McKelvie, Alexander & Short, Jeremy C. & Ketchen, David J. & Wan, William P., 2013. "Political institutional structure influences on innovative activity," Journal of Business Research, Elsevier, vol. 66(12), pages 2574-2580.
  5. Heinz Hollenstein, 2013. "Wirtschaftliche Rahmenbedingungen als Element der Innovationspolitik," KOF Analysen, KOF Swiss Economic Institute, ETH Zurich, vol. 7(2), pages 47-55, June.
  6. Prettner, Klaus, 2013. "Public education, technological change and economic prosperity," Center for European, Governance and Economic Development Research Discussion Papers 149, University of Goettingen, Department of Economics.
  7. Prettner, Klaus & Werner, Katharina, 2014. "Human capital, basic research, and applied research: Three dimensions of human knowledge and their differential growth effects," Center for European, Governance and Economic Development Research Discussion Papers 186, University of Goettingen, Department of Economics.
  8. Cozzi, Guido & Galli, Silvia, 2011. "Privatization of Knowledge: Did the U.S. Get It Right? (New Version)," MPRA Paper 29710, University Library of Munich, Germany.
  9. Edward J. Balistreri & Russell H. Hillberry & Thomas F. Rutherford, 2009. "Trade and Welfare: Does Industrial Organization Matter?," CER-ETH Economics working paper series 09/119, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
  10. Prettner, Klaus, 2012. "Public education, technological change and economic prosperity: semi-endogenous growth revisited," Annual Conference 2012 (Goettingen): New Approaches and Challenges for the Labor Market of the 21st Century 65414, Verein für Socialpolitik / German Economic Association.

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