Working Paper: CEPR ID: DP7795
Authors: Hans Gersbach; Maik Schneider; Olivier Schneller
Abstract: We study the interplay between basic and applied research intensities in a simple model of creative destruction with research complementarities. Basic research intensity is chosen by the government and applied research intensity by the private sector. We find that the closer the country is to the world?s technological frontier the more the government should invest in basic research and the more the private sector will react with higher R&D expenditures. If innovation steps are small, a higher degree of openness triggers higher basic research and higher applied research investments in leading sectors. If innovation steps are larger, the government invests less in basic research, while firms in leading sectors tend to increase R&D investments, and those in lagging sectors reduce them. In the light of these findings, we discuss the available empirical evidence on basic-research expenditures across countries.
Keywords: applied research; basic research; distance to frontier; openness
JEL Codes: O31; O38
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Government investment in basic research (H54) | Private sector R&D expenditures (O32) |
| Openness (O36) | Investments in basic and applied research (O32) |
| Increased foreign competition (F69) | Reduced R&D efforts by lagging firms (L15) |
| Approaching technological frontier (O33) | Increased government investment in basic research (H54) |
| Increased government investment in basic research (H54) | Higher private sector innovation efforts (O36) |
| Larger innovation steps (O35) | Reduced government basic research investments (H54) |
| Larger innovation steps (O35) | Increased R&D efforts in leading sectors (O39) |