Abstract
How should governments best allocate their budget to support private research activities? The consensus in the literature is that sector-specific R&D support policies should be increasing in the degree of compatibility of sectoral innovation with the practices of the wider economy. Using a multi-sector endogenous growth model with in-house R&D and knowledge spillovers, it is shown, that accounting for the time it takes for an innovation to diffuse modifies this widely-accepted result. Wide applicability of green innovations alone does not justify higher research subsidies.
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