Why Basic Science Matters for Economic Growth

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By Philip Barrett, Niels-Jakob Hansen, Jean-Marc Natal and Diaa Noureldin

The pandemic has rolled back decades of economic progress and wrought havoc on public finances. To build back better and fight climate change, sizable public investment needs to be sustainably financed.  Boosting long-term growth—and thereby tax revenue—has rarely felt more pressing.  

But what are the drivers of long-term growth? Productivity—the ability to create more outputs with the same inputs—is an important one. In our latest World Economic Outlook, we emphasize the role of innovation in stimulating long-term productivity growth. Surprisingly, productivity growth has been declining for decades in advanced economies despite steady increases in research and development (R&D), a proxy for innovation effort.

Our analysis suggests that the composition of R&D matters for growth. We find that basic scientific research affects more sectors, in more countries and for a longer time than applied research (commercially oriented R&D by firms), and that for emerging market and developing economies, access to foreign research is especially important. Easy technology transfer, cross-border scientific collaboration and policies that fund basic research can foster the kind of innovation we need for long-term growth.

Inventions draw on basic scientific knowledge