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Increasing human capital key to innovation: National Bureau of Economic Research

If you want sustained economic growth then you need innovation. How to increase that innovation is the trick that all advanced economies are trying to learn, especially as the world emerges from a pandemic that has spent the past year crushing the global economy. Increasing growth and stimulating innovation are essential to the coming recovery. 

Examining the issue in a research paper for the National Bureau of Economic Research, John Van Reenen writes that boosting the supply of potential inventors would seem the natural place to start thinking about innovation policy, and that increasing human capital both in terms of quantity and quality is key. 

Handing out R&D subsidies and tax breaks is a common tactic to stimulate the “demand side”, but may only drive up price rather than pump up the volume of research activity. The better tactic, he argues, is increasing the overall supply of potential inventors which can increase innovation while at the same time reducing its cost. 

But how to actually do so? The policies studied in his paper include:

  • increasing STEM, 
  • fostering immigration reform, 
  • boosting university expansion, 
  • and reducing barriers to entry through exposure policies for disadvantaged or under-represented groups.

While more work needs to be done in evaluating specific policy proposals, Van Reenen concludes that “in the short run, liberalizing high-skilled immigration is likely to yield a high return. In the longer run, I suggest that exposure policies may produce the greatest effect.”

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