Back to Basics: Basic Research Spillovers, Innovation Policy and Growth
57 Pages Posted: 21 Sep 2013
Date Written: September 18, 2013
This paper introduces a model of endogenous growth through basic and applied research. Basic research differs from applied research in the nature and the magnitude of the generated spillovers. We propose a novel way of empirically identifying these spillovers and embed them in a general equilibrium framework with private firms and a public research sector. After characterizing the equilibrium, we estimate our model using micro-level data on research expenditures by French firms. Our key finding is that standard R&D policies can accentuate the dynamic misallocation in the economy. We also find a strong complementarity between the property rights of basic research and the optimal funding of public research.
Keywords: Innovation, basic research, applied research, research and development, government spending, endogenous growth, spillover
JEL Classification: O31, O38, O40, 043, 047, L78
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