Economics, 3rd Edition

Research and Development 

R&D is essential to the long-term improvement of knowledge creation, the 

development of new products and new processes. R&D is, however, expensive and, as noted, unless 

the results can be protected in some way, the knowledge created becomes a public good. This is one 

of  the reasons why many governments invest in supporting and funding research and development. 

Research bodies can be set up which receive requests for funding from firms and from higher education 

institutions, sometimes in partnership, who then decide on the allocation of funds based on the perceived 

value and importance of the research being proposed. Governments may also provide tax credits, tax 

relief or grants to help support R&D in smaller firms.