Discussion paper

DP10357 On the Global Supply of Basic Research

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.


Gersbach, H and M Schneider (2015), ‘DP10357 On the Global Supply of Basic Research‘, CEPR Discussion Paper No. 10357. CEPR Press, Paris & London. https://cepr.org/publications/dp10357