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

To be presented at the ASSA 2022 Meeting PhD Lightning Round and at the 2021 European Winter Meeting of the Econometric Society

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.

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

NBER Working Paper # 27862. R&R 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.

Read more at: VoxEu.

The Origins of Regional Specialization, with Josh Morris-Levenson.

Presented at 2021 North America Meeting of the Urban Economics Association

Abstract: Why do US states specialize in different sectors? Using Census microdata from 1860-2020, we document that employment specialization is highly persistent, which suggests that specialization may deviate from natural advantage, and reallocation could increase aggregate output. Furthermore, growing sectors in a state disproportionately hire interstate migrants. Workers' mobility allows specialization to change; next, we show that mobility frictions contribute to persistence in specialization. We develop a quantitative spatial model in which workers move across state-by-sector labor markets in response to exogenous changes in local fundamentals, mobility frictions, and labor market-specific idiosyncratic skills. Persistence arises from mobility frictions and agglomeration, a reduced-form proxy for investment in physical capital. Removing mobility frictions reduces persistence by one third in the short run, even when investment follows its baseline path. Output increases substantially in the frictionless economy compared to the baseline due to improved matching of workers to labor markets rather than changes in the aggregate sectoral composition of states.


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.


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

Presented at 2021 NBER Summer Institute

Draft Available Upon Request

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.