Working Paper: NBER ID: w19473
Authors: Ufuk Akcigit; Douglas Hanley; Nicolas Serrano Velarde
Abstract: 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.
Keywords: basic research; applied research; spillovers; innovation policy; economic growth
JEL Codes: L78; O31; O38; O40; O43; O47
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Basic research (C90) | Applied innovation productivity (O49) |
| Basic research (C90) | Spillovers across industries (L69) |
| Applied research (C90) | Incremental innovations within targeted industry (O31) |
| Basic research (C90) | 89% of spillovers not internalized (D62) |
| 89% of spillovers not internalized (D62) | Reduction in welfare (I38) |
| Public basic research policies (O38) | Significant welfare improvements (D69) |
| Standard innovation policies (O38) | Dynamic misallocation (D51) |
| Applied research (C90) | Overinvestment due to competition (G31) |