The Global Race for Talent: Brain Drain, Knowledge Transfer, and Economic Growth

Draft coming soon

Abstract: How does international inventors' migration affect talent allocation, knowledge diffusion, and productivity growth across countries? I develop a novel two-country model of innovation-based endogenous growth. Migration decisions and interaction networks are micro-founded and shape aggregate outcomes, diffusing knowledge within and across countries. I link the model to a novel micro-level dataset of migrant inventors, which I build from patent data. Along the US-EU corridor, asymmetric migration flows create brain drain (net emigration) in the EU and brain gain (net immigration) in the US. Migrants collaborate with others both in the country of destination and origin, and they increase their patenting by 42% after migration. This gain spills over to their collaborators at origin, who increase patenting by 15% when a co-inventor emigrates. I calibrate the model to match these facts, and I study counterfactual policy exercises. A 10 p.p. decrease in the tax rate for foreigners and return migrants in the EU eliminates the brain drain but reduces knowledge spillovers. On net, EU innovation increases by 10%, but US innovation declines by 6%, which reduces technology diffusion to the EU. The former effect dominates in the short run, but the latter dominates in the long run. As a result, productivity growth in the EU increases by 5% in the first 15 years, but it declines by 6% in the new long-run equilibrium.


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.


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.


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

Presented at 2021 North America Meeting of the Urban Economics Association

Draft Coming Soon

Abstract: US states specialize in different sectors in terms of employment, and specialization is highly persistent. Does specialization reflect natural advantage, or does path dependence play a role? To answer this question, we study the dynamics of specialization over the period 1860-2020. We find that growing sectors in a state disproportionately hire interstate migrants, who are positively selected. This finding suggests that while internal migration facilitates changes in specialization, costs to moving across states and sectors contribute to persistence. Next, we develop a quantitative spatial model in which productivity shocks attract workers to a state and sector, and persistence arises from mobility frictions and endogenous investment in local sectoral productivity. These forces reflect the influence of human and physical capital on persistence. Removing mobility frictions reduces persistence by 40% in the short run. Investment supports persistence over longer horizons. The frictionless economy is substantially more productive than the baseline, due to the efficient allocation of workers’ idiosyncratic skills rather than changes in the sectoral composition of states.

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

Presented at 2021 NBER Summer Institute

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.