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Back to Basics: Private and Public Investment in Basic R&D and Macroeconomic Growth

Author

Listed:
  • Nicolas Serrano-Velarde

    (Oxford University)

  • Douglas Hanley

    (University of Pennsylvania)

  • Ufuk Akcigit

    (University of Pennsylvania and NBER)

Abstract

This paper introduces endogenous technical change through basic and applied research in a growth model. Basic research differs from applied research in two significant ways. First, significant advances in technological knowledge come through basic research rather than applied research. Second, these significant advances could potentially be applicable to multiple industries. Since these applications are not immediate, the innovating firm cannot exploit all the benefits of the basic innovations for production. We analyze the impact of this appropriability problem on firms' basic research incentives in an endogenous growth framework with private firms and an academic sector. After characterizing the equilibrium, we estimate our model using micro level data on research expenditures and behavior by French firms. We then decompose the aggregate growth by the source and type of innovation. Moreover, we quantitatively document the size of the underinvestment in basic research and consider various research policies to alleviate this inefficiency. Our analysis highlights the need for devoting a larger fraction of GDP for basic academic research, as well as higher subsidy rates for private research.

Suggested Citation

  • Nicolas Serrano-Velarde & Douglas Hanley & Ufuk Akcigit, 2011. "Back to Basics: Private and Public Investment in Basic R&D and Macroeconomic Growth," 2011 Meeting Papers 1196, Society for Economic Dynamics.
  • Handle: RePEc:red:sed011:1196
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    File URL: https://economicdynamics.org/meetpapers/2011/paper_1196.pdf
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    References listed on IDEAS

    as
    1. Hans Gersbach & Maik T. Schneider & Olivier Schneller, 2008. "On the Design of Basic-Research Policy," CER-ETH Economics working paper series 08/79, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
    2. Giammario Impullitti, 2010. "International Competition And U.S. R&D Subsidies: A Quantitative Welfare Analysis," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 51(4), pages 1127-1158, November.
    3. Link, Albert N, 1981. "Basic Research and Productivity Increase in Manufacturing: Additional Evidence," American Economic Review, American Economic Association, vol. 71(5), pages 1111-1112, December.
    4. Sharon Belenzon & Tomer Berkovitz & Patrick Bolton, 2009. "Intracompany Governance and Innovation," NBER Working Papers 15304, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Katsuhiko Hori & Katsunori Yamada, 2013. "Education, Innovation and Long-Run Growth," The Japanese Economic Review, Japanese Economic Association, vol. 64(3), pages 295-318, September.

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