On the global supply of basic research |
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| Affiliation: | 1. CER-ETH - Center of Economic Research at ETH Zurich, Zürichbergstrasse 18, 8092 Zurich, Switzerland;2. CEPR, United Kingdom;1. Faculty of Economics, Chuo University, Japan;2. Graduate School of Economics, Kyoto University, Japan;1. Harvard University, USA;2. Bank of International Settlements, Switzerland;3. INSEAD, France;1. Division of Monetary Affairs Board of Governors of the Federal Reserve System, United States;2. The Clearing House, 1114 Avenue of the Americas, New York, NY 10036, United States;3. La Caixa Research Department, Spain;1. International Monetary Fund and Joint Vienna Institute, Austria;2. Rutgers University and NBER, United States;1. University of Zurich, Department of Banking and Finance, Switzerland;2. European Central Bank, Germany;3. Swiss Finance Insitute, Switzerland;4. University of Zurich, Department of Business Administration, Switzerland |
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| Abstract: | In a two-country Schumpeterian growth model, we study the incentives for basic research investments by governments in a globalized world. 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 why some smaller countries invest so much 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. |
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| Keywords: | Basic research Public goods Economic growth Coordination of governments |
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