THE ECONOMIC BENEFITS OF PUBLICLY FUNDED BASIC RESEARCH: A CRITICAL REVIEW

Abstract

This article critically reviews the literature on the economic benefits of publicly funded basic
research. In that literature, three main methodological approaches have been adopted —
econometric studies, surveys and case studies. Econometric studies are subject to certain
methodological limitations but they suggest that the economic benefits are very substantial.
These studies have also highlighted the importance of spill over’s and the existence of
localisation effects in research. From the literature based on surveys and on case studies, it is
clear that the benefits from public investment in basic research can take a variety of forms. We
classify these into six main categories, reviewing the evidence on the nature and extent of each
type. The relative importance of these different forms of benefit apparently varies with
scientific field, technology and industrial sector. Consequently, no simple model of the
economic benefits from basic research is possible. We reconsider the rationale for government
funding of basic research, arguing that the traditional ‘market failure’ justification needs to
be extended to take account of these different forms of benefit from basic research. The article
concludes by identifying some of the policy implications that follow from this review.