Research

WORKING PAPERS

The Global Race for Talent: Brain Drain, Knowledge Transfer, and Economic Growth [SSRN Link]

R&R at The Quarterly Journal of Economics

Awarded Best Job Market Paper by the European Economic Association and Unicredit Foundation

Abstract: How does inventors' migration affect talent allocation, knowledge diffusion, and productivity growth across countries? To answer this question, I use a novel micro-level dataset of migrant inventors from patent data, and I trace the network of migrants' co-inventors in the countries of origin and destination. I focus on the US-EU corridor, where a fourth of US patents are produced by immigrants, of whom 27% come from the EU. I document four new empirical results. (i) Gross migration flows are asymmetric, creating brain drain (net emigration) from the EU to the US. (ii) Migrants increase their patenting by 42% after migration. (iii) Migrants continue working with inventors at origin after moving, although less frequently. (iv) Migrants' productivity gains spill over to their collaborators at origin, who increase patenting by 15% when a co-inventor emigrates. To assess the implications of these results for the economy's innovative capacity and policy, I develop a novel two-country model of innovation-based endogenous growth. Inventors are born with heterogeneous talent, which increases endogenously over time by interacting and learning from others. In addition, they produce innovations and solve forward-looking, dynamic problems of migrating abroad or returning to the home country. Inventors who move abroad interact with individuals at both origin and destination, creating a network that diffuses knowledge within and across countries. I calibrate the model to match the empirical results, and I study the impact of innovation and migration policy. A 10 percentage-point decrease in the tax rate for foreigners and return migrants in the EU eliminates the brain drain in the short run but reduces knowledge spillovers in the long run. On net, after 25 years, EU innovation increases by 9%, but US innovation declines by 6%, which reduces technology diffusion to the EU. The former effect dominates in the short run, increasing EU productivity growth by 5% in the first 25 years. However, the latter effect dominates in the long run, reducing EU productivity growth by 6% in the new long-run equilibrium. On the migration policy side, doubling the size of the US H1B visa program increases productivity by 9% in the US and the EU in the long-run, because it sorts inventors to where they are most productive and can learn most, increasing knowledge spillovers to other countries.

The End of the American Dream? Inequality and Segregation in US Cities, with Alessandra Fogli, Veronica Guerrieri, and Mark Ponder

R&R at the Journal of Political Economy

Abstract: Since the 1980s the US has experienced not only a steady increase in income inequality, but also a contemporaneous rise in residential segregation by income. What is the relationship between inequality and residential segregation? How does it affect intergenerational mobility? We first document a positive correlation between inequality and segregation, both over time and across metro areas. We then develop a general equilibrium model where parents choose the neighborhood where they raise their children and invest in their children’s education. In the model, segregation and inequality amplify each other because of a local spillover that affects the return to education. We calibrate the model to a representative US metro in 1980 and use the micro estimates of neighborhood exposure effects in Chetty and Hendren (2018b) to discipline the strength of the local spillover. We first use the calibrated version of the model to explore the economy’s response to an unexpected skill premium shock. We find that segregation dynamics played a significant role in amplifying the increase in inequality and in dampening intergenerational mobility. We then use the model to explore the effects of policies designed to move poor people to better neighborhoods, like the Moving To Opportunity program. We show that scaling up MTO policies induces general equilibrium effects that limit their efficacy.

Tapping into Talent: Coupling Education and Innovation Policies for Economic Growth, with Ufuk Akcigit and Jeremy Pearce.

NBER Working Paper # 27862. Accepted at The Review of Economic Studies

Abstract: 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 counterfactual 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.

PUBLICATIONS

Slow Household Deleveraging, with Veronica Guerrieri and Guido Lorenzoni.

Journal of the European Economic Association, Vol. 18, Issue 6, Dec. 2020, pages 2755-2775.

Abstract: We use a model of precautionary savings with housing and mortgages to study the effects of a deleveraging shock on consumer spending. We focus on deleveraging caused by a contraction in home values, and compute numerically the partial equilibrium effect of the shock. Our simulations show that household deleveraging is associated to a long and protracted weakness in consumption. These effects appear even if we assume, realistically, that housing wealth is illiquid and mortgage debt is long-term. We show that housing wealth matters for consumption decisions due to an insurance force: consumers know they can sell their house if they get hit by sufficiently negative shocks in the future. We also show that our slow deleveraging mechanism is amplified when incomes are affected by weak aggregate consumption demand through general equilibrium effects.

WORK IN PROGRESS

Scaling Up the American Dream: A Dynamic Analysis, with Alessandra Fogli, Veronica Guerrieri and Mark Ponder

Neighborhood Segregation and Endogenous Racial Bias, with Alessandra Fogli, Martin Garcia Vazquez, and Veronica Guerrieri

Career Choice of Entrepreneurs, Inventors and the Rise of Firms, with Ufuk Akcigit, Harun Alp, and Jeremy Pearce

Abstract: New technologies emerge and translate into economic growth through the team effort of inventors, entrepreneurs, and production workers. This paper provides a unified life-cycle framework to characterize how society determines the population split across these three groups and connects the relationship between entrepreneurs and inventors to economic growth. We proceed by linking detailed micro-data from Denmark on individual entrepreneurs, inventors, workers, and firms to a novel quantitative endogenous growth model on occupational sorting and matching between inventors and entrepreneurs. Empirically, we find that while parental exposure is a key determinant of entrepreneurship, sorting into inventing occupations is primarily determined by education and IQ. Entrepreneurs with higher ability, as proxied by IQ, hire more inventors, hire inventors of higher ability, create more innovative firms and grow faster. We build the quantitative model based on this evidence and use it to characterize how entrepreneurs and inventors stimulate economic growth. Individuals self-select into different occupations and entrepreneurship depending on their characteristics (e.g., parental background, IQ, preferences) and entrepreneurs assemble teams in order to innovate and grow firms. The model highlights the importance of assortative matching between talented entrepreneurs and inventors for the rise of successful firms. In addition to matching the data, the model admits various counterfactuals to study the underlying mechanics of entrepreneurs and inventors. We find that the assortative matching between entrepreneurs and R&D workers explains 7% of economic growth and 14% of firm growth, indicating the importance of matching the right team early in the firm.