We need public and private research and development

Should the public sector engage in research and development (R&D) or should the private sector be left to take care of it? While all agree that R&D is necessary, who pays for it is obviously important. And whether public and private R&D are substitutes or complements is of critical importance here.

Sadraoui Tarek and Naceur Ben Zina look at this question using panel data over 23 countries using an endogenous growth model and come to the conclusion that they are complements. Also, R&D depends on the countries' human capital, which should surprise nobody.

The usual justification for public R&D is that fundamental research would not be carried out by the private sector as there is no profit to gain from it. Thus, the complementarity result could just emerge from this. However, non-fundamental R&D is much more important, and if public and private non-fundamental R&D were substitutes, this would most likely show in the aggregate. But it would be nice if the data could make this distinction.

So, governments, continue doing research, and make sure your workforce is well educated.