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Publicly funded basic research has a big impact on industrial productivity, according to a report out this week. The study, carried out by Sussex University researchers for the Treasury.

says the relationship between basic research and productivity is likely to become stronger since new technologies are increasingly dependent on advances in basic research.

Researchers led by Ben Martin and Ammon Salter say that without basic research, exploration of underlying scientific processes will suffer, hindering Britain's ability to produce further technological advances.

The health of the national science base has a major impact on the scientific activity of large firms. Until recently most multinational firms conducted the great majority of their research in their home country. These firms are now more discerning. The report warns that some are now locating research activities in areas round the world which have a strong science base and are rich in scientific skills.

The researchers, based at the Science Policy Research Unit, say skilled graduates who enter industry are one of the major channels through which basic research is transformed into economic benefit. This suggests that policies should be directed towards increasing industrial recruitment of qualified scientists and engineers, particularly in the case of firms that lack this resource.

Government expectations about the benefits from basic research are changing, says the study. A new "social contract" is emerging in which there are more specific expectations that basic research should generate economic and social benefits in return for the substantial public funds it receives.