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Optimal Mix of Applied and Basic Research, Distance to Frontier, and Openness

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  • Gersbach, Hans
  • Schneider, Maik
  • Schneller, Olivier

Abstract

We study the interplay between basic and applied research intensities in a simple model of creative destruction with research complementarities. Basic research intensity is chosen by the government and applied research intensity by the private sector. We find that the closer the country is to the world’s technological frontier the more the government should invest in basic research and the more the private sector will react with higher R&D expenditures. If innovation steps are small, a higher degree of openness triggers higher basic research and higher applied research investments in leading sectors. If innovation steps are larger, the government invests less in basic research, while firms in leading sectors tend to increase R&D investments, and those in lagging sectors reduce them. In the light of these findings, we discuss the available empirical evidence on basic-research expenditures across countries.

Suggested Citation

  • Gersbach, Hans & Schneider, Maik & Schneller, Olivier, 2010. "Optimal Mix of Applied and Basic Research, Distance to Frontier, and Openness," CEPR Discussion Papers 7795, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:7795
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    Cited by:

    1. Manuel A. Gómez & Tiago Neves Sequeira, 2016. "R&D Subsidies and Foreign Direct Investment," Open Economies Review, Springer, vol. 27(4), pages 769-793, September.
    2. Cozzi, Guido & Galli, Silvia, 2017. "Should the government protect its basic research?," Economics Letters, Elsevier, vol. 157(C), pages 122-124.
    3. Gersbach, Hans & Schetter, Ulrich & Schneider, Maik, 2015. "How Much Science? The 5 Ws (and 1 H) of Investing in Basic Research," CEPR Discussion Papers 10482, C.E.P.R. Discussion Papers.
    4. Guido Cozzi & Silvia Galli, 2014. "Sequential R&D and blocking patents in the dynamics of growth," Journal of Economic Growth, Springer, vol. 19(2), pages 183-219, June.
    5. De Fraja, Gianni, 2011. "A Theoretical Analysis of Public Funding for Research," CEPR Discussion Papers 8442, C.E.P.R. Discussion Papers.
    6. Hans Gersbach & Maik Schneider & Olivier Schneller, 2013. "Basic research, openness, and convergence," Journal of Economic Growth, Springer, vol. 18(1), pages 33-68, March.

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    More about this item

    Keywords

    applied research; basic research; distance to frontier; openness;
    All these keywords.

    JEL classification:

    • 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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