Public investment in basic research will pay for itself.
Philip Barrett, Niels-Jakob Hansen, Jean-Marc Natal, Diaa Noureldin
October 6, 2021
The pandemic has rolled back decades of economic progress and wrought havoc on public finances. To build back better and fight climate change, sizable public investment needs to be sustainably financed. Boosting long-term growth—and thereby tax revenue—has rarely felt more pressing.
But what are the drivers of long-term growth? Productivity—the ability to create more outputs with the same inputs—is an important one. In our latest World Economic Outlook, we emphasize the role of innovation in stimulating long-term productivity growth. Surprisingly, productivity growth has been declining for decades in advanced economies despite steady increases in research and development (R&D), a proxy for innovation effort.
Knowledge transfer between countries is an important driver of innovation.
Our analysis suggests that the composition of R&D matters for growth. We find that basic scientific research affects more sectors, in more countries and for a longer time than applied research (commercially oriented R&D by firms), and that for emerging market and developing economies, access to foreign research is especially important. Easy technology transfer, cross-border scientific collaboration and policies that fund basic research can foster the kind of innovation we need for long-term growth.
Inventions draw on basic scientific knowledge
While applied research is important to bring innovations to market, basic research expands the knowledge base needed for breakthrough scientific progress. A striking example is the development of COVID-19 vaccines, which in addition to saving millions of lives has helped bring forward the reopening of many economies, potentially injecting trillions into the global economy. Like other major innovations, scientists drew on decades of accumulated knowledge in different fields to develop the mRNA vaccines.
Basic research is not tied to a particular product or country and can be combined in unpredictable ways and used in different fields. This means that it spreads more widely and remains relevant for a longer time than applied knowledge. This is evident from the difference in citations between scientific articles used for basic research, and patents (applied research). Citations for scientific articles peak at about eight years versus three years for patents.
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