Hierarchical Growth: Basic and Applied Research

48 Pages Posted: 16 Aug 2010

See all articles by Christian Amon

Christian Amon

ETH Zürich - CER-ETH - Center of Economic Research at ETH Zurich

Hans Gersbach

ETH Zurich - CER-ETH -Center of Economic Reseaarch; IZA Institute of Labor Economics; CESifo (Center for Economic Studies and Ifo Institute); Centre for Economic Policy Research (CEPR)

Gerhard Sorger

University of Vienna - Faculty of Business, Economics, and Statistics

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Date Written: August 2010

Abstract

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.

Keywords: Applied research, Basic research, Commercialization, Hierarchical economic growth, Knowledge base

JEL Classification: H41, O31, O41

Suggested Citation

Amon, Christian and Gersbach, Hans and Sorger, Gerhard, Hierarchical Growth: Basic and Applied Research (August 2010). CEPR Discussion Paper No. DP7950. Available at SSRN: https://ssrn.com/abstract=1658257

Christian Amon (Contact Author)

ETH Zürich - CER-ETH - Center of Economic Research at ETH Zurich ( email )

Zürichbergstrasse 18
Zurich, 8092
Switzerland

Hans Gersbach

ETH Zurich - CER-ETH -Center of Economic Reseaarch ( email )

Zürichbergstrasse 18
Zurich, 8092
Switzerland
+41 44 632 82 80 (Phone)
+41 44 632 18 30 (Fax)

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Gerhard Sorger

University of Vienna - Faculty of Business, Economics, and Statistics ( email )

Vienna, A-1210
Austria

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