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K. Prettner, K. Werner:
"Human capital, basic research, and applied research: three dimensions of human knowledge and their differential growth effects";
Report for cege Discussion Paper, Dep. of Economics, University of Göttingen; Report No. 186, 2014; 32 pages.

We analyze the differential growth effects of basic research, applied research, and embodied
human capital accumulation in an R&D-based growth model with endogenous fertility
and endogenous education. In line with the empirical evidence, our model allows for i) a
negative association between long-run economic growth and population growth, ii) a positive
association between long-run economic growth and education, and iii) a positive association
between the level of per capita GDP and expenditures for basic research. Our results also
indicate that raising public investments in basic research reduces the growth rate of GDP in
the short run because resources have to be drawn away from other productive sectors of the
economy. These short-run costs of basic research might be an explanation for the reluctance
of governments to increase public R&D expenditures notwithstanding the long-run benefits
of such a policy.