nep-ino New Economics Papers
on Innovation
Issue of 2017‒02‒12
twenty-one papers chosen by
Uwe Cantner
University of Jena

  1. The inter-temporal dimension to knowledge spillovers: any non-environmental reason to support clean innovation? By Christos Karydas
  2. Reconciling Models of Diffusion and Innovation: A Theory of the Productivity Distribution and Technology Frontier By Jess Benhabib; Jesse Perla; Christopher Tonetti
  3. Knowledge Composition, Jacobs Externalities and Innovation Performance in European Regions By Antonelli, Cristiano; Crespi, Francesco; Mongeau, Christian; Scellato, Giuseppe
  4. Technological Change and Employment: Were Ricardo and Marx Right? By Piva, Mariacristina; Vivarelli, Marco
  5. The Unexpected Consequences of Asymmetric Competition. An Application to Big Pharma By Castanheira, Micael; de Frutos, Maria-Angeles; Ornaghi, Carmine; Siotis, Georges
  6. Mapping and Analysis of ICT-enabled Social Innovation initiatives promoting social investment across the EU: IESI Knowledge Map 2016 By Gianluca Misuraca; Csaba Kucsera; Giulio Pasi; Dimitri Gagliardi; Fabienne Abadie
  7. JRC Insights - Social Policy Innovation Series - Leveraging Digital Social Innovation: Perspectives from the IESI Knowledge Map By Gianluca Misuraca; Giulio Pasi; Dimitri Gagliardi; Fabienne Abadie
  8. Green tax reform, endogenous innovation and the growth dividend By Christos Karydas; Lin Zhang
  9. The Ant and the Grasshopper: Seasonality and the Invention of Agriculture By Matranga, Andrea
  10. Secondary Pharmaceutical Patenting: A Global Perspective By Bhaven N. Sampat; Kenneth C. Shadlen
  11. Entrepreneurship, Economic Development and Institutional Environment: Evidence from OECD countries By Rafik Abdesselam; Jean Bonnet; Patricia Renou-Maissant; Mathilde Aubry
  12. The 2016 EU Industrial R&D Investment Scoreboard By Hector Hernandez Guevara; Fernando Hervas Soriano; Alexander Tuebke; Antonio Vezzani; Sara Amoroso; Alexander Coad; Petros Gkotsis; Nicola Grassano
  13. Linking Emissions Trading Schemes in the Presence of Research and Develoment Spillovers By Nachtigall, Daniel
  14. Sources of economic growth in MENA countries: A Harrod-neutral technological progress identification framework By Senay, Acikgöz; Ali, Mohamed Sami Ben; Mert, Merter
  15. Blockchain: A Primer By Dwyer, Gerald P
  16. O papel das Instituições de Ensino Superior para o desenvolvimento territorial: Análise da comunidade de Pós-Graduação do Rio Grande do Sul e o caso das cidades de Pelotas e Rio Grande By Tartaruga, Iván G. Peyré
  17. Decentralization in Heterogeneous Regions: A Biased Technological Change Approach By Feder, Christophe; Kataishi, Rodrigo Ezequiel
  18. Mobile phones, Institutional Quality and Entrepreneurship in Sub-Saharan Africa By Asongu, Simplice; Nwachukwu, Jacinta
  19. Research and Impacts of Digital Financial Services By Karlan, Dean; Kendall, Jake; Mann, Rebecca; Pande, Rohini; Suri, Tavneet; Zinman, Jonathan
  20. Industrial clusters: The case for Special Economic Zones in Africa By Carol Newman; John Page
  21. Human Capital Acquisition and Occupational Choice: Implications for Economic Development By Mestieri, Martí; Schauer, Johanna; Townsend, Robert M

  1. By: Christos Karydas (ETH Zurich, Switzerland)
    Abstract: How should governments best allocate their budget to support private research activities? The consensus in the literature is that sector-specific R&D support policies should be increasing in the degree of compatibility of sectoral innovation with the practices of the wider economy. Using a multi-sector endogenous growth model with in-house R&D and knowledge spillovers, it is shown, that accounting for the time it takes for an innovation to diffuse modifies this widely-accepted result. Wide applicability of green innovations alone does not justify higher research subsidies.
    Keywords: Climate Policy, Industrial Policy, Innovation Spillovers, Technology Diffusion, Endogenous Growth
    JEL: O31 O33 Q54 Q55 Q58 H23
    Date: 2017–01
  2. By: Jess Benhabib; Jesse Perla; Christopher Tonetti
    Abstract: We study how innovation and technology diffusion interact to endogenously determine the productivity distribution and generate aggregate growth. We model firms that choose to innovate, adopt technology, or produce with their existing technology. Costly adoption creates a spread between the best and worst technologies concurrently used to produce similar goods. The balance of adoption and innovation determines the shape of the distribution; innovation stretches the distribution, while adoption compresses it. Whether and how innovation and diffusion contribute to aggregate growth depends on the support of the productivity distribution. With finite support, the aggregate growth rate cannot exceed the maximum growth rate of innovators. Infinite support allows for “latent growth”: extra growth from initial conditions or auxiliary stochastic processes. While innovation drives long-run growth, changes in the adoption process can influence growth by affecting innovation incentives, either directly, through licensing excludable technologies, or indirectly, via the option value of adoption.
    JEL: O14 O30 O31 O33 O40
    Date: 2017–01
  3. By: Antonelli, Cristiano; Crespi, Francesco; Mongeau, Christian; Scellato, Giuseppe (University of Turin)
    Abstract: This paper analyses the role of the composition of the regional stock of knowledge in explaining innovation performance. The paper provides three main contributions. First, it investigates the relevance of Jacobs knowledge externalities in characterizing the technological capabilities at the regional level. Second, it applies the Hidalgo-Hausmann (HH) methodology to analyze knowledge composition by looking at patent data of 214 regions, located in 27 state members of the European Union (EU) during the years 1994- 2008. Third, it econometrically assesses the role of knowledge base composition in a knowledge generation function. The results of the empirical analysis confirm that the characterization of regional knowledge base through the HH indicators provides interesting information to understanding its composition and to qualify it as a provider of the Jacobs knowledge externalities that account for the dynamics of regional innovative performance.
    Date: 2016–07
  4. By: Piva, Mariacristina (Università Cattolica del Sacro Cuore); Vivarelli, Marco (Università Cattolica del Sacro Cuore)
    Abstract: The aim of this paper is twofold. On the one hand, the economic insights about the employment impact of technological change are disentangled starting from the classical economists to nowadays theoretical and empirical analyses. On the other hand, an empirical test is provided; in particular, longitudinal data – covering manufacturing and service sectors over the 1998-2011 period for 11 European countries – are used to run GMM-SYS and LSDVC estimates. Two are the main results: 1) a significant labour-friendly impact of R&D expenditures (mainly related to product innovation) is found; yet, this positive employment effect appears to be entirely due to the medium-and high-tech sectors, while no effect can be detected in the low-tech industries; 2) capital formation is found to be negatively related to employment; this outcome points to a possible labour-saving effect due to the embodied technological change incorporated in gross investment (mainly related to process innovation).
    Keywords: technological change, employment, sectoral analysis, EU
    JEL: O33
    Date: 2017–01
  5. By: Castanheira, Micael; de Frutos, Maria-Angeles; Ornaghi, Carmine; Siotis, Georges
    Abstract: This paper shows that a pro-competitive shock leading to a steep price drop in one market segment may benefit substitute products. Consumers move away from the cheaper product and demand for the substitutes increases, possibly leading to a drop in consumer surplus. The channel leading to this outcome is non-price competition: the competitive shock on thefirst set of products decreases the firms' ability to invest in promotion, which cripples their ability to lure consumers. To assess the empirical relevance of these findings, we study the effects of generic entry into the pharmaceutical industry by exploiting a large product-level dataset for the US covering the period 1994Q1 to 2003Q4. We find strong empirical support for the model's theoretical predictions. Our estimates rationalize a surprising finding, namely that a molecule that loses patent protection (the originator drug plus its generic competitors) typically experiences a drop in the quantity market share-despite being sold at a fraction of the original price.
    Keywords: Asymmetric competition; Generic entry; Pharmaceutical industry
    JEL: D22 I11 L13
    Date: 2017–01
  6. By: Gianluca Misuraca (European Commission – JRC); Csaba Kucsera (European Commission – JRC); Giulio Pasi (European Commission – JRC); Dimitri Gagliardi (University of Manchester); Fabienne Abadie (European Commission – JRC)
    Abstract: This report presents the results of the analysis of the consolidated mapping of ICT-enabled social innovation initiatives promoting social investment gathered as part of the research project entitled 'ICT-Enabled Social Innovation to support the Implementation of the Social Investment Package' (IESI). The dataset includes 613 initiatives inventoried over the course of the research, out of which 300 have been mapped and are part of the IESI Knowledge Map 2016. The results of the analysis of the IESI mapping is meant to help policymakers and practitioners to use ICT-enabled social innovation to modernise EU welfare states, providing better and more efficient social services and increasing the skills, wellbeing and resilience of EU citizens. In this perspective, the documented research design, its proposed terminology, theoretical framework and findings contribute to the growing scientific interest and debate about ICT-enabled social innovations in the field of social services innovation and social policy redesign within the scope of the emerging discussion on the European Pillar of Social Rights and the future of welfare systems.
    Keywords: Social policy, innovation, ICT, social investment, social policy innovation, SIP, Social Investment Package, social economy, social enterprise, ICT enabled social innovation, ICT, services, social protection, welfare, mapping, welfare reforms, wellbeing, resilience
    JEL: I31 I38 O35 O33
    Date: 2017–01
  7. By: Gianluca Misuraca (European Commission – JRC); Giulio Pasi (European Commission – JRC); Dimitri Gagliardi; Fabienne Abadie (European Commission – JRC)
    Abstract: This issue of the ‘JRC Insights’ discusses how ICT-enabled social innovation initiatives that promote social investment through integrated approaches to social services delivery can contribute to the policy objectives of the EU Social Investment Package. Digitally-enhanced social service delivery can promote social investment. ICTs often play a game-changing role in the development of platforms that support innovative partnerships. Here, social challenges can be addressed by focusing on two objectives: (i) the modernisation of social protection systems in the EU Member States and, (ii) promoting experimental approaches to innovation-driven social investments. Modernisation and experimentation in social protection systems has been revived by the emergence of a new type of business, private or not for profit, in the field of social services. These businesses explore or even co-create innovative financial instruments. In particular, evidence gathered shows that ICT-enabled social innovation initiatives respond to the social needs of society or specific groups in society by facilitating co-creation and co-production processes. These processes enrich policy design with stakeholders' specific knowledge and competencies. ICT-enabled social innovation initiatives have the capacity to identify emerging or unmet needs, engage stakeholders and turn their governance models into sustainable production processes. This aspect makes their contributions to social investment approaches particularly apt.
    Keywords: Social investment, social policy innovation, SIP, Social Investment Package, social economy, social enterprise, ICT enabled social innovation, ICT, services, social protection, social welfare
    Date: 2017–01
  8. By: Christos Karydas (ETH Zurich, Switzerland); Lin Zhang (City University of Hong Kong, Hong Kong)
    Abstract: We study theoretically and numerically the effects of an environmental tax reform using endogenous growth theory. In the theoretical part, mobile labor between manufacturing and R&D activities, and elasticity of substitution between labor and energy in manufacturing lower than unity allow for a growth dividend, even if we consider preexisting tax distortions. The scope for innovation is reduced when we consider direct financial investment in the lab, or elastic labor supply. We then apply the core theoretical model to a real growing economy and find that a boost in economic growth following such a carbon policy is a possible outcome. Lump-sum redistribution performs best in terms of effciency measured by aggregate welfare, while in terms of equity among social segments its progressive character fails when we consider very high emissions reduction targets.
    Keywords: Climate Policy, Green Tax Reform, Induced Innovation, Endogenous Growth, Numerical Modelling
    JEL: C63 E62 O44 Q43 Q48
    Date: 2017–01
  9. By: Matranga, Andrea
    Abstract: During the Neolithic Revolution, seven populations independently invented agriculture. In this paper, I argue that this innovation was a response to a large increase in climatic seasonality. In the most affected regions, hunter-gatherers abandoned their traditional nomadism in order to store food and smooth their consumption. Their new sedentary lifestyle greatly simplified the invention and adoption of agriculture. I present a model that captures the key incentives for adopting agriculture, and I test the resultant predictions against a global panel dataset of climate conditions and Neolithic adoption dates. I find that invention and adoption were both systematically more likely in places with higher seasonality. The findings of this paper imply that seasonality patterns 10,000 years ago were amongst the major determinants of the present day global distribution of crop productivities, ethnic groups, cultural traditions, and political institutions.
    Keywords: Neolithic, Agriculture, Technological Progress
    JEL: N50 O33 O44
    Date: 2017–02–05
  10. By: Bhaven N. Sampat; Kenneth C. Shadlen
    Abstract: Pharmaceutical firms’ use of secondary patents to extend periods of exclusivity generates concerns among policymakers worldwide. In response, some developing countries have introduced measures to curb the grant of these patents. While these measures have received considerable attention, there is limited evidence on their effectiveness. We follow a large sample of international patent applications in the US, Japan, the European Patent Office, and corresponding filings in three developing countries with restrictions on secondary patents, India, Brazil, and Argentina. We examine cross-country comparisons of primary vs. secondary grant rates, consider the differential fates of “twin” applications filed in multiple countries, and undertake detailed analyses of patent prosecution in the three developing countries. Our analyses indicate that measures to restrict secondary patents in developing countries are having limited impact. In none of these three countries are specific policies toward secondary patents the principal determinant of grant rates. Our analyses also suggest the importance of other procedural aspects of patent systems, beyond the formal policies targeting secondary applications, that affect outcomes for these applications in developing countries.
    JEL: I18 O3
    Date: 2017–01
  11. By: Rafik Abdesselam (University of Lyon, Lumière Lyon 2, COACTIS, EA 4161, France); Jean Bonnet (University of Caen Normandy, CREM-CAEN, UMR CNRS 6211, France); Patricia Renou-Maissant (University of Caen Normandy, CREM-CAEN, UMR CNRS 6211, France); Mathilde Aubry (Management School of Normandy, METIS Research Department, France)
    Abstract: The purpose of this article is to establish a typology of entrepreneurship for OECD countries over the 1999-2012 period. Our aim is to make a distinction between managerial and entrepreneurial economies, to identify groups of countries with similar economic and entrepreneurial activity variables and to determine the economic and institutional drivers of entrepreneurial activities in each group. We show that the level of development, sectoral specialization, and institutional variables related to entrepreneurship, functioning of the labor market and openness of the country are decisive to understand differences in entrepreneurship activity across countries. Results show that the pre-crisis period, from 1999 to 2008, is a period of growth favorable to entrepreneurship. The financial crisis involved a break in entrepreneurial dynamism with agricultural economies withstanding the financial crisis better. The 2010-2012 period of recovery is a period of a sharp slowdown in entrepreneurial activity, during which the countries that are less dependent on the financial sector proved to be the most resilient in terms of entrepreneurial activity. Nevertheless, it is the advanced economies of knowledge with developed financial markets, fewer institutional regulatory constraints and qualitative entrepreneurship that show the weaker unemployment rates. These findings have important implications for the implementation of public policy in order to promote entrepreneurial activity and reduce unemployment.
    Keywords: Entrepreneurship, Data analysis methods, Entrepreneurial/Managerial economies
    JEL: L26 C38 O1
    Date: 2017–02
  12. By: Hector Hernandez Guevara (European Commission – JRC); Fernando Hervas Soriano (European Commission – JRC); Alexander Tuebke (European Commission – JRC); Antonio Vezzani (European Commission – JRC); Sara Amoroso (European Commission – JRC); Alexander Coad (European Commission – JRC); Petros Gkotsis (European Commission – JRC); Nicola Grassano (European Commission – JRC)
    Abstract: The 2016 edition of the EU Industrial R&D Investment Scoreboard (the Scoreboard) analyses the 2500 companies investing the largest sums in R&D in the world in the fiscal year 2015. It comprises companies based in the EU (590), the US (837), Japan (356), China (327), Taiwan (111), South Korea (75), Switzerland (58) and further 20 countries. This Scoreboard edition shows significant worldwide rise of corporate R&D, driven by high-tech industries. Revenues declined mostly due to low-tech sectors. Top 2500 Scoreboard firms invested in R&D €692.3bn in 2015, increase of 6.6% vs. 2014, similar growth than year before (6.8%). EU companies increased R&D above world's and US's growth rates in 2015. Asian companies continued to show large R&D growth but slowdown in revenues growth. Growth was driven by companies operating in the largest R&D-investing industries (ICT, health and auto, that also increased significantly net sales, while the overall fall in net sales was mostly due low-tech sectors and in particular due to oil-related companies. The Software industry showed the highest R&D growth worldwide, led by global software firms. In addition, notable R&D growth of non-EU companies dominated by high-tech sectors (mostly by US and Chinese companies) while growth of net sales greatly varied across sectors and countries. Among top 50 R&D investors, there are 15 EU companies, same as in last ranking and 30 firms among top 100, one more than last year. The two top investors are Volkswagen (€13.6bn) in 1st place and Samsung (€12.5bn) from KOR in 2nd. The other firms in top-ten are Intel, Alphabet and Microsoft (€11.0bn) from the US; Novartis (€9.0bn) and Roche (€8.6bn) from Switzerland; Huawei (€8.4bn) from China; Johnson & Johnson (€8.3bn) from the US and Toyota Motor (€8.0bn) from Japan.
    Keywords: Industrial R&D, top R&D investors, innovation, company performance, economic and innovation performance
    Date: 2017–01
  13. By: Nachtigall, Daniel
    Abstract: I analyze the role of research and development (R&D) spillovers on the incentives to link emissions trading schemes (ETSs) under different timings with respect to the determination of the emissions reduction target (ERT) and to the linking decision. When countries decide upon linking their ETSs prior to setting their ERTs, the permit importing country may not consent to link in the absence of R&D spillovers. The reason is that the other country strategically decreases its ERT to increase its revenues from permit trading, thereby increasing the costs for the permit importing country. However, in the presence of R&D spillovers, the permit importing country benefits from higher R&D spillovers and from lower environmental damage under linking relative to autarky and is therefore willing to link. When countries determine their ERTs prior to the linking decision, the role of R&D spillovers on the linking decision reverses. In the absence of R&D spillovers, both countries unambiguously are willing to link their ETSs due to the efficiency gains from trade. However, if R&D spillovers are relevant, the permit exporting country may be worse off under linking because its R&D spillovers deteriorate due to lower abatement effort by the other country. Hence, there is a trade-off between the efficiency gains from trade and the reduced R&D spillovers, causing the permit exporting country to reject linking if the spillover effect is sufficiently large.
    JEL: H41 Q54 Q56
    Date: 2016
  14. By: Senay, Acikgöz; Ali, Mohamed Sami Ben; Mert, Merter
    Abstract: This study answers the question: What are the results of assuming the nature of technological progress as Harrod-neutral in growth accounting for the Middle East and North African (MENA) countries? Accordingly, this study contributes to the debate over whether the sources of economic growth stem from technological progress, capital or human capital accumulation. The study finds evidence that economic growth stems from capital accumulation rather than total factor productivity for the MENA countries, except Israel and Saudi Arabia. The authors concluded that assuming the nature of technological progress as Harrod-neutral in growth accounting for the MENA countries does not have a critical impact on the results.
    Keywords: sources of economic growth,growth accounting,human capital,bounds testing,ARDL,MENA
    JEL: O30 O47 O57 C22
    Date: 2017
  15. By: Dwyer, Gerald P
    Abstract: The Bitcoin blockchain is the primary innovation in Bitcoin that makes it practical. Blockchains have applications in many contexts other than cryptocurrencies. This note is an introduction to blockchains that requires no prior knowledge, including of Bitcoin. Blockchains are ledgers of transactions kept by a set of participants, none of which is accorded special status as the “correct one.” Instead, agreement is reached by a process of consensus. I show how this works for Bitcoin, discuss applications in many alternative settings and provide some detail about a very different proof-of-concept application of blockchains by the Japan Exchange Group.
    Keywords: Blockchain, public distributed ledger, Bitcoin
    JEL: G10 G18 G21 G23 G28
    Date: 2016–12
  16. By: Tartaruga, Iván G. Peyré
    Abstract: Nowadays, the process of innovation has become an important agent to social and economic development of regions and countries. Thus, within the context of the “heterodox paradigm of economic geography”, the region-specific capacities are fundamental for such activities of development, which one has been more and more appraised: the knowledge from the higher education institutions (HEIs). This article analyses the role of HEIs in general and the situation in the State of Rio Grande do Sul (Brazil) in particular, in the period of 2000 through 2010, by means of the postgraduate structure. The paper ends with some considerations about a regional agenda of research to the municipalities of Pelotas and Rio Grande in the sense of their territorial development within the heterodox perspective. The results highlight the strength of postgraduate structure of the region and, consequently, higher education in general, also stressing the State potentialities for scientific, technological and of innovative progress.
    Keywords: higher education institutions; postgraduate; science, technology and innovation (S&T&I); territorial development; Pelotas; Rio Grande
    JEL: I23 O33
    Date: 2015–06
  17. By: Feder, Christophe; Kataishi, Rodrigo Ezequiel (University of Turin)
    Abstract: Regional heterogeneity plays a determinant role in both the decentralization and the biased technological change literature. Merging these perspectives, this paper offers a novel approach on how productivity of firms can be affected by public policies within centralized and decentralized political systems. The contribution of this paper is to develop a theoretical model that introduces the biased technological change concept instead of the traditional Total Factor Productivity (TFP) to evaluate policy outcomes. By doing so, we find that public policies may not always have the expected effect in terms of effciency. In our model, productivity and effciency will depend on the level of regional heterogeneity, the inter-regional spillovers and the relative amount of regional endowments. In particular, our point argues that if there is regional heterogeneity but no inter-regional spillovers a centralized policy can be effcient and that if regions are homogeneous in the presence of inter-regional spillovers, a decentralized strategy can be effcient too. Last, we find that there are cases that may reach no effcient outcomes, regardless the political system.
    Date: 2017–01
  18. By: Asongu, Simplice; Nwachukwu, Jacinta
    Abstract: This study investigates the role of mobile phones in governance for doing business in Sub-Saharan Africa with data from the period 2000-2012 by employing the Generalised Method of Moments. Three broad concepts of governance are explored, namely: (i) political (comprising voice & accountability and political stability/no violence), (ii) economic (involving government effectiveness and regulation quality) and (iii) institutional (including corruption-control and rule of law). Ten dimensions of entrepreneurship are considered. Two main findings are established with respect to the net effects of the interaction between mobile phones and governance dynamics. They are (1) reduced cost of business start-up procedure, the time to build a warehouse and the time to resolve an insolvency; (2) increased start-up procedure to register a business; the time to enforce a contract; the time to register a property and time to prepare and pay taxes. Implications for theory and policy are discussed.
    Keywords: Entrepreneurship; Knowledge Economy; Development; Africa
    JEL: L59 L98 O10 O30 O55
    Date: 2016–11
  19. By: Karlan, Dean (Yale University); Kendall, Jake (Caribou Digital); Mann, Rebecca (Bill and Melinda Gates Foundation); Pande, Rohini (Harvard University); Suri, Tavneet (MIT); Zinman, Jonathan (Dartmouth College)
    Abstract: A growing body of rigorous research shows that financial services innovations can have important positive impacts on wellbeing, but also that many do not. We first describe the latest evidence on what works in financial inclusion. Second, we summarize research on key financial market failures and on products and innovations that address specific mechanisms underlying them. We conclude by highlighting open areas for future work.
    Date: 2016–09
  20. By: Carol Newman; John Page
    Abstract: Firms tend to cluster in close geographic proximity to each other to benefit from reduced transport costs, shared inputs, and productivity spillovers due to learning and technology transfers. Evidence from low-income countries suggests that such agglomeration economies may be substantial in endogenously formed clusters. This raises the question of whether spatial industrial policies can be designed to facilitate clustering. In this paper, we consider the case for creating Special Economic Zones (SEZs) in Africa. We document at the country level the state of current SEZ programmes and the policy measures in place for their promotion. We give an overview of the evidence on their success and provide a set of policy recommendations to improve SEZs performance.
    Keywords: agglomeration, Special Economic Zones, spatial industrial policy, Africa
    Date: 2017
  21. By: Mestieri, Martí; Schauer, Johanna; Townsend, Robert M
    Abstract: Using household-level data from Mexico we document patterns among schooling, entrepreneurial decisions and household characteristics such as assets, talent of household members and age of the household head. Motivated by our findings, we develop a heterogeneous-agent, incomplete- markets, overlapping-generations dynasty model. Households jointly decide over their life cycle on (i) kids' human capital investments (schooling) and (ii) parents' entry, exit and investment into alternative entrepreneurial modes (subsistence and modern). With financial constraints all of these are co-determined. A calibrated version of our model can account for the broad correlation patterns uncovered in the data within and across generations, e.g., a non-monotonic relationship between educational choices and assets across occupations, growth in profits and employment for modern firms only, and dynastic persistence across generations in education and wealth. Endogenous human capital acquisition is a key driver of inequality and intergenerational persistence. Eliminating this channel would decrease the top 10% income share by 47%. Eliminating within-period borrowing constraints would increase average household expenditure by 7.1% and benefit the middle class, reducing top and bottom expenditure shares. It would also reduce by 28% the correlation between household assets and kids' schooling levels.
    Keywords: entrepreneurship; Human Capital; inequality; Mexico; Occupational choice
    JEL: I24 I25 O15 O54
    Date: 2017–02

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