Working Paper: CEPR ID: DP16867
Authors: Richard William Blundell; Xavier Jaravel; Otto Toivanen
Abstract: In this article we review recent evidence showing how market forces and policies shape the rate and direction of innovation, with various implications for inequality. First, we characterize several market mechanisms whereby higher rates of innovation lead to higher inequality. Second, we highlight channels whereby inequality acts as an impediment to innovation and growth. Third, we highlight policies that can help achieve better outcomes for both innovation and inequality. We show that two types of policies, which are not traditionally viewed as part of innovation policy, play a key role to achieve the goal of enhancing innovation while reducing inequality: education and competition policy.
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Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| higher rates of innovation (O35) | greater inequality (I24) |
| greater inequality (I24) | barrier to innovation (O36) |
| inequality (D63) | lower likelihood of pursuing careers in innovation (O31) |
| education and competition policy (L49) | foster innovation and mitigate inequality (O35) |
| innovation by entrants (O36) | increases social mobility (J62) |
| entry barriers (L13) | dampen effect of innovation on social mobility (O35) |
| allocation of innovation rents (O36) | bargaining power of workers (J52) |
| social institutions (D02) | access to education and innovation careers (I24) |