Research Policy and Endogenous Growth

This paper studies the e¤ects of di¤erent types of research policy on economic growth. We ...nd that while tax incentives to private research, public funding of private projects, and basic research performed at public institutions have unambiguously positive e¤ects on economic growth, performing applied research at public institutions could have negative growth e¤ects. This is due to the large crowding out of private research caused by public R&D when it competes with private ...rms in the “patent race”. Concerning the e¤ects of these policies on welfare, it is found that research policy can either improve or reduce consumer welfare depending on the characteristics of the policy and that an excessively high research subsidy will reduce it. ¤I am thankful to Jordi Caballé for his valuable comments and directions. I would also like to aknowledge the help of David Pérez-Castrillo with the initial design of the R&D sector.