Innovation Policy and the Economy 2019

A defining feature of modern economic growth is the systematic application of science to advance technology. However, despite continuous progress in scientific knowledge, recent productivity growth in the U.S. has been disappointing. Arora, Belenzon, Patacconi, and Suh review major changes in the American innovation ecosystem over the past century and note that the past three decades have been marked by a growing division of labor between universities focusing on research and large corporations focusing on development. Knowledge produced by universities is not often in forms that can be readily digested and turned into new goods and services by companies, especially as large companies themselves withdraw from research. Small firms and university technology transfer offices cannot fully substitute for corporate research, which integrated multiple disciplines and components at the scale required to solve significant technical problems. Therefore, whereas the division of innovative labor may have raised the volume of science by universities, it also slowed, at least for a period of time, the transformation of that knowledge into novel products and processes.

American technological creativity is geographically concentrated in areas that are generally distant from the country's most persistent pockets of joblessness. Should innovation policy attempt to engender more innovation is distressed areas? Glaeser and Hausman explore these questions. The primarily inventive parts of innovation policy, such as N.I.H. grants, can aid under-performing areas, possibly through health improvements that reduce the share of people on Disability Insurance, without any spatial reallocation. Moreover, since research funding is presumably already designed to maximize knowledge production, spatial reallocation may come at a considerable cost. The educational aspects of innovation policy, such as Pell Grants, work-study and Federal overhead reimbursement on grants, can reflect regional realities better and do more to encourage employment in distressed areas. Lifting the cap on H1B visas in poorer places can also enhance local human capital. Finally, there is particular scope for geographically targeted entrepreneurship policy, such as eliminating the barriers to new business formation near universities and in distressed places. Spatially targeted employment subsidies can also encourage more labor-intensive innovation in depressed areas.

Talent is the most precious resource for today's knowledge-based economy, and a significant share of the U.S. skilled workforce in technology fields is foreign born. The United States has long held a leading position in attracting global talent, but the gap to other countries is weakening. Immigration policies like the H-1B visa program shape the admissions of foreign workers to the country and grant a particularly strong gatekeeping role to sponsoring firms and universities. Kerr explores the data around global talent flows and some of the economic implications of an employer-driven immigration approach.

Experimental approaches are increasingly being adopted across many policy fields, but innovation policy has been lagging. Bravo-Biosca reviews the case for policy experimentation in this field, describes the different types of experiments that can be undertaken, discusses some of the unique challenges to the use of experimental approaches in innovation policy, and summarizes some of the emerging lessons, with a focus on randomized experiments. The research concludes describing how at the Innovation Growth Lab we've been working with governments across the OECD to help them overcome the barriers to policy experimentation in order to make their policies more impactful.