Effect of Basic Research and Applied Research on Growth of Open Economy

The growth rate of an economy in the open economy depends on not only its growth rate of technology but also the growth rate of other economies. So it's necessary to study the investment on research and its effect on technological advances and economic growth. This inter product expanding endogenous model can help explore the effect of basic research, applied research and technological spillover on the economic growth. Through analyzing the model in balanced market, the paper concludes that more research investment, more applied research investment and more degree of openness can promote the growth rate of economy. An empirical study, using the data of China from 1990 to 2012, affirms the effect of the research investment, the percentage of applied research investment and the degree of openness on the economic growth. Proposals in terms of economic policy are provided based on the theoretical model and the result of the study.