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From Local to Global: A Unified Theory of Public Basic Research

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  • Gersbach, Hans
  • Schetter, Ulrich
  • Schmassmann, Samuel

Abstract

We analyze public investment in basic research in a multi-country, multi-industry environment with international trade. In our economy, basic research generates ideas which private firms take up in applied research to develop new varieties. Such development requires industryspecific know-how. A country's current specialization in international trade thus determines which ideas can be commercialized domestically. We demonstrate that the equilibrium is consistent with key patterns observed from the data. We then compare basic research investments of national governments with optimal investments of a global social planner. We show that national investments are inefficient along three dimensions: (1) There is typically too little total investment in basic research. (2) Basic research is too heavily concentrated in industrialized countries. (3) And basic research is potentially insufficiently directed to support innovation in complex, high-tech industries.

Suggested Citation

  • Gersbach, Hans & Schetter, Ulrich & Schmassmann, Samuel, 2018. "From Local to Global: A Unified Theory of Public Basic Research," Economics Working Paper Series 1816, University of St. Gallen, School of Economics and Political Science.
    • Handle: RePEc:usg:econwp:2018:16
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    References listed on IDEAS

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    1. Sebastián Bustos & Charles Gomez & Ricardo Hausmann & César A Hidalgo, 2012. "The Dynamics of Nestedness Predicts the Evolution of Industrial Ecosystems," PLOS ONE, Public Library of Science, vol. 7(11), pages 1-8, November.
    2. Ricardo Hausmann & César Hidalgo, 2011. "The network structure of economic output," Journal of Economic Growth, Springer, vol. 16(4), pages 309-342, December.
    3. Ulrich Schetter, 2020. "Quality Differentiation, Comparative Advantage, and International Specialization Across Products," CID Working Papers 126a, Center for International Development at Harvard University.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Cozzi, Guido & Galli, Silvia, 2022. "Covid-19 Vaccines, Innovation, and Intellectual Property Rights," GLO Discussion Paper Series 1095, Global Labor Organization (GLO).
    2. Ulrich Schetter & Adrian Jäggi & Maik T. Schneider, 2021. "Inequality, Openness, and Growth through Creative Destruction," CID Working Papers 130a, Center for International Development at Harvard University.

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    More about this item

    Keywords

    applied research; basic research; economic growth; international trade; knowledge spillover; optimal policy;
    All these keywords.

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • H40 - Public Economics - - Publicly Provided Goods - - - General
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy

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