Working Paper: CEPR ID: DP10357
Authors: Hans Gersbach; Maik T. Schneider
Abstract: 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.
Keywords: basic research; coordination of governments; economic growth; public goods
JEL Codes: O31; O38
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Human Capital (J24) | Basic Research Investments (H54) |
| Market Size (L25) | Basic Research Investments (H54) |
| Non-coordination of Policies (E61) | Underinvestment in Basic Research (H54) |