Spillovers
Benefits of an investment that flow to others without payment, such as knowledge from one firm's research that rivals can use. They make the social return exceed the private return.
Where you will meet it
Spillovers appears in 3 learning outcomes on the CFA syllabus. A few of them:
- Explain how spending on human capital, physical capital and technology development feeds economic growth
“Some capital, such as information and communication technology and public infrastructure, generates spillovers that raise productivity across the economy.”
- Contrast the classical, neoclassical and endogenous theories of growth
“Endogenous growth theory explains technology inside the model: knowledge spillovers offset diminishing returns, so more saving can raise growth permanently.”
- Explain the economic case for governments encouraging private investment in knowledge and technology
“A firm investing in research captures only part of the return, because spillovers benefit rivals, suppliers and customers.”
Practise it
Practise spillovers until it is automatic: questions that explain every wrong option.
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