DP10357 On the Global Supply of Basic Research

Author(s): Hans Gersbach, Maik Schneider
Publication Date: January 2015
Keyword(s): basic research, coordination of governments, economic growth, public goods
JEL(s): O31, O38
Programme Areas: Public Economics, Industrial Organization
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=10357

In a two-country Schumpeterian growth model, we study the incentives for basic research investments by governments in a globalized world. 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 that some smaller countries invest a lot in basic research. Compared with the optimal investments achievable when countries coordinate their basic research policies, a single country may over-invest in basic research. However, the total amount of decentralized basic research investments is always below the socially optimal investment level, which justifies policy coordination in this area.