CIAO DATE: 01/2013
December 2012
Norwegian Institute of International Affairs
Evidence points to relatively low supply elasticities for workers skilled for research and development (R&D), which can hamper innovation and growth. Increasing the supply of R&D skills will expand an economy’s innovative capacity. A simultaneous effect of increased education, which is particularly important for small, open economies, is to raise final goods producers’ capacity to absorb cross-border knowledge spillovers. In a calibrated endogenous growth model for Norway, we find that increasing the share of highly educated workers has pronounced absorptive capacity effects that partially crowd out R&D-based innovation. Both innovative and absorptive capacity expansions contribute to higher growth and welfare.
Resource link: Innovative and absorptive capacity effects of education in a small, open economy [PDF] - 1.7M