Chapter 9: Basic Research and Growth Policy
1 Hans Gersbach INTRODUCTION The design of appropriate growth policies is arguably the most important policy area of any government. While simple blueprints for such a policy design are not available, even for industrial countries, the workhorses of the new growth theory have generated new insights as to which policy areas are potentially relevant for growth. While at a deep level, institutional conditions are important, the following policy areas have been identified as growth-enhancing: competition and entry policy, education policy and macroeconomic policies.2 However, their concrete configuration depends on the characteristics of a country, such as the distance to the technological frontier or the country’s level of financial development. Basic research policy3 has been neglected so far. In this short chapter, I address the key issues regarding the policy towards basic research and how these policies depend on a country’s characteristics. In the next section, I briefly review the macroeconomic significance of basic research around the world. Then, I address the nature of the public good ‘basic research’ and the question why a country may not want to rely solely on foreign direct investment (FDI) (or trade) as a mechanism to obtain leading-edge production techniques. In section 9.4, I employ Schumpeterian growth thinking to identify the usefulness of basic research for an individual country and address the issue how a country’s level of basic research depends on its degree of globalization and on its distance to the technological frontier. In section 9.5, I address the issue of which schemes might...
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