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Funding basic science research leads to stronger economic growth

October 27, 2021
By: Jordan Kendall

Greater investment in basic scientific research, as opposed to applied research, is more likely to drive stronger long-term economic growth, induce a knowledge spillover effect, increase productivity ROI, and encourage more public-private collaboration, according to a group of economists at the International Monetary Fund. They found that basic research is an essential input into innovation and the economists explain its importance in a recent post on the IMFBlog titled Why Basic Science Matters for Economic Growth.

Productivity is one of the most significant drivers of long-term economic growth, though there has been a notable decline of productivity in advanced economies despite steady increases in R&D, the economists say. They argue this is because developed economies tend to concentrate investment in advanced scientific research, which is less conducive to long-term productivity growth. Rather, innovation is a key stimulant for long-term productivity growth, which benefits more from investments in basic scientific research. Basic research affects more sectors, in more locations, and for a longer period of time than applied research, they say. This helps to foster the type of relevant innovation and breakthrough scientific progress needed for long-term economic growth.

There are a number of other benefits that come from greater investment in basic scientific research. For example, basic research is more likely to induce knowledge spillovers, or “the additional impact of foreign research on patenting,” which is particularly important for innovation and productivity growth in emerging markets.

The IMF economists also suggest that funding only public basic research, such as that within universities and public labs, could be an inefficient method of research investment that neglects important synergies between the public and private sectors. By subsidizing basic research and encouraging closer public-private cooperation, productivity could be further boosted at a lower cost for public finances. The IMF suggests that “an implementable hybrid policy that doubles subsidies to private research and boosts public research expenditure by a third could increase productivity growth in advanced economies by 0.2 percentage point a year.”

Overall, IMF researchers suggest that increased investments in basic scientific research would begin to pay for itself within a decade, despite offering slightly lower economic gains in the short-term. This shift in investment strategy would increase per capita incomes by about 12 percent higher than they would be without such investments, offering compelling incentives for public and private organizations alike.

science, r&d, economy