## Why Basic Science Matters for Economic Growth

_IMF Blog, October 6, 2021_

## Source details

**Canonical URL:** [Why Basic Science Matters for Economic Growth](https://www.imf.org/en/blogs/articles/2021/10/06/blog-ch3-weo-why-basic-science-matters-for-economic-growth)

## Other formats

- [Markdown version](/en/blogs/articles/2021/10/06/blog-ch3-weo-why-basic-science-matters-for-economic-growth/index.md)
- [Structured JSON version](/en/blogs/articles/2021/10/06/blog-ch3-weo-why-basic-science-matters-for-economic-growth/index.json)
- [Bundle manifest](/en/blogs/articles/2021/10/06/blog-ch3-weo-why-basic-science-matters-for-economic-growth/bundle-manifest.json)

## Bibliographic details
- Authors: Philip-Barrett, Niels-Jakob-Hansen, Jean-Marc-Natal, Diaa Noureldin
- Published: October 6, 2021

---

### Role of basic vs. applied research
- Basic scientific research affects more sectors, in more countries and for a longer time than applied research (commercially oriented R&D by firms).
- Basic research is not tied to a particular product or country and can be combined in unpredictable ways and used in different fields.
- Citations for scientific articles used for basic research peak at about eight years versus three years for patents.

### Knowledge transfer and spillovers
- Knowledge transfer between countries is an important driver of innovation, especially in emerging market and developing economies.
- Emerging market and developing economies rely much more on foreign than homegrown research (basic and applied) for innovation and growth.
- In countries with strong education systems and deep financial markets, the estimated effect of foreign technology adoption on productivity growth—through trade, foreign direct investment or learning-by-doing—is particularly large.
- Quantitative finding: a 1-percentage-point increase in foreign basic knowledge increases annual patenting in emerging market and developing economies by around 0.9 percentage point more than in advanced economies.

### Innovation, patenting, and productivity
- Patenting is used as a proxy for measuring innovation.
- An increase in the stock of patents by 1 percent can increase productivity per worker by 0.04 percent.
- A 10 percent permanent increase in the stock of a country’s own basic research can increase productivity by 0.3 percent.
- A 10 percent permanent increase in the stock of foreign basic research increases productivity by 0.6 percent.
- Basic science plays a larger role in green innovation (including renewables) than in dirty technologies (such as gas turbines).

### Policy implications and recommendations
- Private firms tend to underinvest in basic research because they can capture only a small part of the uncertain financial reward, providing a case for public policy intervention.
- Funding basic research only at universities and public labs could be inefficient and may lose synergies between the private and public sector; it may also be difficult to disentangle basic and applied private research for the sake of subsidizing only the former.
- An implementable hybrid policy modeled in the analysis:
  - Doubles subsidies to private research (basic and applied alike).
  - Boosts public research expenditure by a third.
  - Estimated outcome: could increase productivity growth in advanced economies by 0.2 percentage point a year.
- Better targeting of subsidies to basic research and closer public‑private cooperation could boost productivity further at lower cost to public finances.
- These investments would start to pay for themselves within about a decade and would have a sizeable impact on incomes.
- Historical counterfactual estimate: per capita incomes would be about 12 percent higher than they are now had these investments been made between 1960 and 2018.
- Because of important spillovers to emerging markets, ensuring the free flow of ideas and collaboration across borders is key.

*Source: Why Basic Science Matters for Economic Growth — Philip Barrett, Niels-Jakob Hansen, Jean-Marc Natal, Diaa Noureldin; October 6, 2021.*

---


## References

- [World Economic Outlook](https://www.imf.org/en/Publications/WEO/Issues/2021/10/12/world-economic-outlook-october-2021/)
- [productivity growth](https://blogs.imf.org/2021/06/10/getting-back-to-growth/)
- [injecting trillions into the global economy](https://blogs.imf.org/2021/05/21/a-proposal-to-end-the-covid-19-pandemic/)
- [green innovation](https://blogs.imf.org/2021/07/22/reaching-net-zero-emissions/)

_Source: https://www.imf.org/en/blogs/articles/2021/10/06/blog-ch3-weo-why-basic-science-matters-for-economic-growth_