DP11707 Back to Basics: Basic Research Spillovers, Innovation Policy and Growth

Author(s): Ufuk Akcigit, Douglas Hanley, Nicolas Serrano-Velarde
Publication Date: December 2016
Keyword(s): applied research, basic research, Endogenous Growth, government spending, innovation, productivity, Research and Development, spillover.
JEL(s): J82, L25, L50, O31, O38, O40
Programme Areas: Macroeconomics and Growth
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=11707

This paper introduces a general equilibrium model of endogenous technical change 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 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 innovation policies (e.g., uniform R&D tax credits) can accentuate the dynamic misallocation in the economy by oversubsidizing applied research. Policies geared towards public basic research and its transmission to the private sector are significantly welfare improving.