The economic benefits of publicly funded basic research: a critical review

This article critically reviews the literature on the economic benefits of publicly funded basic research. In that literature, three main methodologic al approaches have been adopted - econometric studies, surveys and case stu dies. Econometric studies are subject to certain methodological limitations but they suggest that the economic benefits are very substantial. These st udies have also highlighted the importance of spillovers and the existence of localisation effects in research. From the literature based on surveys a nd on case studies, it is clear that, the benefits from public investment i n basic research can take a variety of forms. We classify these into six ma in categories, reviewing the evidence on the nature and extent of each type . The relative importance of these different forms of benefit apparently va ries 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, argui ng that the traditional 'market failure' justification needs to be extended to take account of these different forms of benefit from basic research. T he article concludes by identifying some of the policy implications that fo llow from this review. (C) 2001 Elsevier Science B.V. All rights reserved.