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On the Global Supply of Basic Research

In this paper we study the incentives for basic-research investments by governments in a globalized world. For this purpose, we develop a two-country Schumpeterian growth model in which each country chooses its basic-research investments. We find that a country's basic-research investments increase with the country's level of human capital and decline with its own market size. This may explain the large basic-research investments by small open economies. Compared with the optimal investments achievable when countries coordinate their basic-research policies, a single country may over-invest in basic research. However, in the decentralized case the total amount of basic-research investments is always below the socially optimal investment level, which justifies policy coordination in this area.

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File URL: http://www.cer.ethz.ch/content/dam/ethz/special-interest/mtec/cer-eth/cer-eth-dam/documents/working-papers/WP-13-175.pdf
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Paper provided by CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich in its series CER-ETH Economics working paper series with number 13/175.

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Length: 40 pages
Date of creation: Feb 2013
Date of revision:
Handle: RePEc:eth:wpswif:13-175
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