Optimal Mix of Applied and Basic Research, Distance to Frontier, and Openness

Hans Gersbach, Maik Schneider and Olivier Schneller

No 7795, CEPR Discussion Papers from C.E.P.R. Discussion Papers

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 (search for similar items in EconPapers)
JEL-codes: O31 O38 (search for similar items in EconPapers)
Date: 2010-05
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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