Government And The Decentralization Of R-And-D

The purpose of this article is to show how costs and benefits of geographical decentralization of R&D can be identified and compared. The benefits for the region that receives R&D activities are studied in section 2. They stem from the short-run multiplier effect, the amelioration of human capital and the possible modernization of the local industrial structure. On the cost side examined in section 3, the observable impacts of the decentralization of R&D concern the loss of returns to scale and urban economies of the production of the R&D output. It is shown, in section 4, that the flows of costs and benefits must be discounted by the social cost of capital. The main conclusion of this article is that the decentralization of R&D in a large, sparsely populated country entails social costs and this would weaken its competitive position in world commerce. On the other hand, the issue of decentralization is more crucial for small countries (in terms of population and economic size) than for large ones, like the U.S., where critical masses of research efforts can be simultaneously attained in many fields and in many places.