NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Back to Basics: Basic Research Spillovers, Innovation Policy and Growth

Ufuk Akcigit, Douglas Hanley, Nicolas Serrano-Velarde

NBER Working Paper No. 19473
Issued in September 2013, Revised in March 2017
NBER Program(s):EFG, IO, PR

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.

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Document Object Identifier (DOI): 10.3386/w19473

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