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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/research/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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  1. Charles I. Jones & Paul M. Romer, 2010. "The New Kaldor Facts: Ideas, Institutions, Population, and Human Capital," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(1), pages 224-45, January.
  2. Monjon, Stéphanie & Waelbroeck, Patrick, 2003. "Assessing spillovers from universities to firms: evidence from French firm-level data," Economics Papers from University Paris Dauphine 123456789/13785, Paris Dauphine University.
  3. Kenneth Arrow, 1962. "Economic Welfare and the Allocation of Resources for Invention," NBER Chapters, in: The Rate and Direction of Inventive Activity: Economic and Social Factors, pages 609-626 National Bureau of Economic Research, Inc.
  4. Stein, Jeremy C. & Dewatripont, Mathias & Aghion, Philippe, 2008. "Academic Freedom, Private-Sector Focus, and the Process of Innovation," Scholarly Articles 3637074, Harvard University Department of Economics.
  5. Peretto, Pietro F., 1999. "Cost reduction, entry, and the interdependence of market structure and economic growth," Journal of Monetary Economics, Elsevier, vol. 43(1), pages 173-195, February.
  6. Monjon, Stephanie & Waelbroeck, Patrick, 2003. "Assessing spillovers from universities to firms: evidence from French firm-level data," International Journal of Industrial Organization, Elsevier, vol. 21(9), pages 1255-1270, November.
  7. Guido Cozzi & Silvia Galli, . "Privatization of Knowledge: Did the U.S. Get It Right?," Working Papers 2008_01, Business School - Economics, University of Glasgow.
  8. Guido Cozzi & Silvia Galli, 2009. "Science-Based R&D in Schumpeterian Growth," Working Papers 2009_19, Business School - Economics, University of Glasgow.
  9. Hans Gersbach & Maik Schneider & Olivier Schneller, 2013. "Basic research, openness, and convergence," Journal of Economic Growth, Springer, vol. 18(1), pages 33-68, March.
  10. Park, Walter G., 1998. "A theoretical model of government research and growth," Journal of Economic Behavior & Organization, Elsevier, vol. 34(1), pages 69-85, January.
  11. Guido Cozzi & Silvia Galli, 2009. "Upstream Innovation Protection: Common Law Evolution and the Dynamics of Wage Inequality," Working Papers 2009_20, Business School - Economics, University of Glasgow.
  12. David B. audretsch & Erik E. Lehmann, 2005. "Mansfield's Missing Link: The Impact of Knowledge Spillovers on Firm Growth," The Journal of Technology Transfer, Springer, vol. 30(2_2), pages 207-210, 01.
  13. Philippe Aghion & Mathias Dewatripont & Jeremy C. Stein, 2008. "Academic freedom, private-sector focus, and the process of innovation," RAND Journal of Economics, RAND Corporation, vol. 39(3), pages 617-635.
  14. Brooks, Harvey, 1994. "The relationship between science and technology," Research Policy, Elsevier, vol. 23(5), pages 477-486, September.
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