A THEORETICAL-MODEL OF GOVERNMENT RESEARCH AND GROWTH

As an institution, the public sector is a major part of a nation's res earch system. This paper studies the effects of government research on long run growth, assuming that government research is not directly es sential to market production but indirectly through its effect on priv ate sector knowledge accumulation. The analysis features knowledge spi llovers not only between public and private research sectors but also between research sectors of different countries. The findings: (i) cha racterize the efficient (growth-maximizing) size of government researc h; (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 foreig n knowledge accumulation are interdependent). (C) 1998 Elsevier Scienc e B.V.