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This paper examines the hypothesis that publicly funded basic research contributes to product innovation in the pharmaceutical industry. New data are collected on pharmaceutical product introductions, pharmaceutical industry R&D investment, and publicly funded basic science investment. A production framework is used to model the number of new products as a function of private and public research investment in seven technology classes over the period 1978-1994. The elasticity estimates indicate that a 1% increase in the stock of public basic research ultimately leads to a 2.0% to 2.4% increase in the number of commercially available new compounds.