Tapping into Talent: Coupling Education and Innovation Policies for Economic Growth

How do innovation and education policy affect individual career choice and aggregate productivity? This paper analyzes the various layers that connect R&D subsidies and higher education policy to productivity growth. We put the development of scarce talent and career choice at the center of a new endogenous growth framework with individual-level heterogeneity in talent, frictions, and preferences. We link the model to micro-level data from Denmark and uncover a host of facts about the links between talent, higher education, and innovation. We use these facts to calibrate the model and study counter-factual policy exercises. We find that R&D subsidies, while less effective than standard models, can be strengthened when combined with higher education policy that alleviates financial frictions for talented youth. Education and innovation policies not only alleviate different frictions, but also impact innovation at different time horizons. Education policy is also more effective in societies with high income inequality.

Keywords: R&D Policy, Education Policy, Inequality, Innovation, IQ, Endogenous Growth

JEL Classification: O31, O38, O47, J24

Suggested Citation: Suggested Citation

Akcigit, Ufuk and Pearce, Jeremy and Prato, Marta, Tapping into Talent: Coupling Education and Innovation Policies for Economic Growth (September 19, 2020). University of Chicago, Becker Friedman Institute for Economics Working Paper No. 2020-137, Available at SSRN: https://ssrn.com/abstract=3699077 or http://dx.doi.org/10.2139/ssrn.3699077