How to Promote R&D-Based Growth? Public Education Expenditure on Scientists and Engineers Versus R&D Subsidies

42 Pages Posted: 21 Jul 2004

See all articles by Volker Grossmann

Volker Grossmann

University of Fribourg - Faculty of Economics and Social Science; Institute for the Study of Labor (IZA); CESifo (Center for Economic Studies and Ifo Institute)

Date Written: June 2004

Abstract

Empirical evidence suggests that positive externalities from R&D exceed negative ones. According to conventional wisdom, this calls for R&D subsidies. This paper develops a quality-ladder growth model with overlapping generations which evaluates the positive and normative implications of R&D subsidies and compares them with the effects of public education policy to promote R&D. Unlike standard growth models, the proposed framework accounts for the specificity of science and engineering (S&E) skills, where individuals endogenously choose the type of education, and allows for heterogeneity in individual ability. Although intertemporal knowledge spillovers are hypothesized and negative R&D externalities are absent, the analysis shows somewhat surprisingly that R&D subsidies may be detrimental to both productivity growth and welfare, in contrast to publicly provided education targeted to S&E skills. Finally, the optimal structure of public education spending on different skills is examined.

Keywords: education policy, endogenous growth, R&D subsidies, scientists and engineers, skill specificity

JEL Classification: H20, O31, O38, O41

Suggested Citation

Grossmann, Volker, How to Promote R&D-Based Growth? Public Education Expenditure on Scientists and Engineers Versus R&D Subsidies (June 2004). CESifo Working Paper Series No. 1225. Available at SSRN: https://ssrn.com/abstract=567103

Volker Grossmann (Contact Author)

University of Fribourg - Faculty of Economics and Social Science ( email )

Fribourg, CH 1700
Switzerland

Institute for the Study of Labor (IZA)

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

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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