A theoretical model of government research and growth

As an institution, the public sector is a major part of a nation's research system. This paper studies the effects of government research on long run growth, assuming that government research is not directly essential to market production but indirectly through its effect on private sector knowledge accumulation. The analysis features knowledge spillovers not only between public and private research sectors but also between research sectors of different countries. The findings: (i) characterize the efficient (growth-maximizing) size of government research; (ii) show that the efficient size is smaller in more open economies; and (iii) indicate that efficient government behavior precludes free-riding on foreign research spillovers (so long as domestic and foreign knowledge accumulation are interdependent). (C) 1998 Elsevier Science B.V.