Basic Research, Development and Endogenous Growth

Abstract

We introduce the distinction between basic research and development nside a standard horizontal innovation framework. Multi-stage R&D is erformed by private agents only. Basic research has the highest level of enerality, implying inter-sector spillovers. Development spillovers bene t evelopment only. In this set up, the counterfactual scale effect character- zing standard horizontal innovation literature disappears endogenously. n terms of R&D policy, the model shows that the social optimum is ttained by subsidizing only basic research. The implied scal policy on R&D is consistent with US data on federal support to privately performed R&D.