Hierarchical Growth: Basic and Applied Research
Swiss Federal Institute of Technology Zurich, (CER-ETH); Institute for the Study of Labor (IZA); CESifo (Center for Economic Studies and Ifo Institute for Economic Research); Centre for Economic Policy Research (CEPR)
University of Vienna - Faculty of Business, Economics, and Statistics
ETH Zürich - CER-ETH - Center of Economic Research at ETH Zurich
July 1, 2009
CER-ETH - Center of Economic Research at ETH Zurich, Working paper No. 09/118
We develop a model that incorporates salient features of growth in modern economies. We combine the expanding-variety growth model through horizontal innovations with a hierarchy of basic and applied research. The former extends the knowledge base, while the latter commercializes it. Two-way spillovers reinforce the productivity of research in each sector. We establish the existence of balanced growth paths. Along such paths the stock of ideas and the stock of commercialized blueprints for intermediate goods grow with the same rate. Basic research is a necessary and sufficient condition for economic growth. We show that there can be two different facets of growth in the economy. First, growth may be entirely shaped by investments in basic research if applied research operates at the knowledge frontier. Second, long-run growth may be shaped by both basic and applied research and growth can be further stimulated by research subsidies. We illustrate different types of growth processes by examples and polar cases when only upward or downward spillovers between basic and applied research are present.
Number of Pages in PDF File: 44
Keywords: Basic research, applied research, knowledge base, commercialization, hierarchical economic growth
JEL Classification: H41, O31, O41working papers series
Date posted: September 1, 2009
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