What is the importance of basic science for economic growth?

The pandemic has set back economic progress by decades and has dealt a blow to public finances. Building a better future and combating climate change requires sustained funding for public investment in significant amounts. Accelerating long-term growth, and thus tax revenues, is an urgent challenge.

But what factors can ensure long-term growth? One important factor is productivity, that is, the ability to increase output without increasing resources. In our latest World Economic Outlook, we highlight the role of innovation in stimulating long-term productivity growth. Ironically, productivity growth in advanced economies has been slowing for decades, despite steady growth in research and development (R&D) as an indicator of innovation activity.

Our analysis shows that the composition of R&D matters for economic growth. We find that basic research influences more industries in more countries and over a longer period of time than applied research (commercial R&D conducted by companies), and that access to foreign R&D is particularly important for emerging and developing countries. Free technology transfer, scientific cooperation among countries, and policies that fund basic research can foster the kind of innovation we need for long-term growth.

Inventions are based on basic scientific knowledge

While applied research plays an important role in driving innovation to market, basic research extends the knowledge base necessary for revolutionary scientific progress. One notable example is the development of COVID-19 vaccines, which has not only saved millions of lives but also accelerated the lifting of restrictions in many countries, potentially enriching the global economy by trillions of dollars. As with other major innovations, scientists drew on decades of accumulated knowledge in various fields to create mRNA vaccines.

Basic research is not tied to a specific product or country and can be combined in unpredictable ways and used in different fields. This means that they are more widely disseminated and retain relevance longer than applied knowledge. This is clearly demonstrated by the difference in citations of scientific articles used for basic research and patents (applied research).

Secondary effects are important for emerging and developing countries

Although the bulk of basic research takes place in advanced economies, our analysis shows that cross-country knowledge transfer is an important driver of innovation, especially in emerging and developing countries.

Emerging and developing countries rely much more on foreign research (basic and applied) than on their own to drive innovation and growth. In countries with strong educational systems and developed financial markets, the perceived impact on productivity growth of introducing foreign technology through trade, foreign direct investment, or learning-by-doing is particularly significant. Thus, emerging and developing countries may find that policies to adapt knowledge from other countries to local conditions are more conducive to development than direct investment in their own basic research.

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