Research Policy and U.S. Economic Growth

This paper examines quantitatively the effects of R&D subsidy and government-financed basic research on U.S. economic growth and consumer welfare. To achieve this, we develop an endogenous growth model which takes into account both public and private research investment, and the differences between basic and non-basic research. A calibrated version of the model is able to replicate some important features of the U.S. economy over the period 1953-2009. Our model suggests that government spending on basic research is an effective policy instrument to promote economic growth. Subsidizing private R&D, on the other hand, has no effect on economic growth.