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

This article critically reviews the literature on the economic benefits of publicly funded basicresearch. In that literature, three main methodological approaches have been adopted —econometric studies, surveys and case studies. Econometric studies are subject to certainmethodological 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 oflocalisation effects in research. From the literature based on surveys and on case studies, it isclear that the benefits from public investment in basic research can take a variety of forms. Weclassify these into six main categories, reviewing the evidence on the nature and extent of eachtype. The relative importance of these different forms of benefit apparently varies withscientific field, technology and industrial sector. Consequently, no simple model of theeconomic benefits from basic research is possible. We reconsider the rationale for governmentfunding of basic research, arguing that the traditional ‘market failure’ justification needs tobe extended to take account of these different forms of benefit from basic research. The articleconcludes by identifying some of the policy implications that follow from this review.