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How to Promote R&D-based Growth? Public Education Expenditure on Scientists and Engineers versus R&D Subsidies

  • Volker Grossmann

Empirical evidence suggests that positive externalities from R&D exceed negative ones. According to conventional wisdom, this calls for R&D subsidies. This paper develops a quality-ladder growth model with overlapping generations which evaluates the positive and normative implications of R&D subsidies and compares them with the effects of public education policy to promote R&D. Unlike standard growth models, the proposed framework accounts for the specificity of science and engineering (S&E) skills, where individuals endogenously choose the type of education, and allows for heterogeneity in individual ability. Although intertemporal knowledge spillovers are hypothesized and negative R&D externalities are absent, the analysis shows somewhat surprisingly that R&D subsidies may be detrimental to both productivity growth and welfare, in contrast to publicly provided education targeted to S&E skills. Finally, the optimal structure of public education spending on different skills is examined.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1225.

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Date of creation: 2004
Date of revision:
Handle: RePEc:ces:ceswps:_1225
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  1. Charles I. Jones, . "Growth: With or Without Scale Effects?," Working Papers 99001, Stanford University, Department of Economics.
  2. Philippe Aghion & Peter Howitt, 1990. "A Model of Growth Through Creative Destruction," NBER Working Papers 3223, National Bureau of Economic Research, Inc.
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  6. Volker Grossmann, 2003. "Contest for Attention in a Quality-Ladder Model of Endogenous Growth," CESifo Working Paper Series 1003, CESifo Group Munich.
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  8. Dominique Guellec & Bruno van Pottelsberghe de la Potterie, 2000. "The Impact of Public R&D Expenditure on Business R&D," OECD Science, Technology and Industry Working Papers 2000/4, OECD Publishing.
  9. Paul M. Romer, 2000. "Should the Government Subsidize Supply or Demand in the Market for Scientists and Engineers?," NBER Working Papers 7723, National Bureau of Economic Research, Inc.
  10. de Hek, Paul A, 1999. "On Endogenous Growth under Uncertainty," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(3), pages 727-44, August.
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  12. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth Through Creative Destruction," Scholarly Articles 12490578, Harvard University Department of Economics.
  13. de Hek, Paul & Roy, Santanu, 2001. "On Sustained Growth under Uncertainty," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 42(3), pages 801-13, August.
  14. Sapir, Andre & Aghion, Philippe & Bertola, Giuseppe & Hellwig, Martin & Pisani-Ferry, Jean & Rosati, Dariusz & Vinals, Jose & Wallace, Helen, 2004. "An Agenda for a Growing Europe: The Sapir Report," OUP Catalogue, Oxford University Press, number 9780199271498, July.
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  16. Glomm, Gerhard & Ravikumar, B., 2003. "Public education and income inequality," European Journal of Political Economy, Elsevier, vol. 19(2), pages 289-300, June.
  17. Hall, Bronwyn & Van Reenen, John, 2000. "How effective are fiscal incentives for R&D? A review of the evidence," Research Policy, Elsevier, vol. 29(4-5), pages 449-469, April.
  18. repec:oup:qjecon:v:110:y:1995:i:2:p:495-525 is not listed on IDEAS
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