Working Paper: NBER ID: w3530
Authors: Kevin M. Murphy; Andrei Shleifer; Robert W. Vishny
Abstract: A country's most talented people typically organize production by others, so they can spread their ability advantage over a larger scale. When they start firms, they innovate and foster growth, but when they become rent seekers, they only redistribute wealth and reduce growth. Occupational choice depends on returns to ability and to scale in each sector, on market size, and on compensation contracts. In most countries, rent seeking rewards talent more than entrepreneurship does, leading to stagnation. Our evidence shows that countries with a higher proportion of engineering college majors grow faster; whereas countries with a higher proportion of law concentrators grow slower.
Keywords: Talent Allocation; Economic Growth; Entrepreneurship; Rent-Seeking
JEL Codes: O11; O31; D21
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| talent allocation (M54) | economic growth (O49) |
| entrepreneurship (M13) | economic growth (O49) |
| rent-seeking (D72) | economic stagnation (P27) |
| engineering graduates (R42) | economic growth (O49) |
| law graduates (K29) | economic stagnation (P27) |
| flow of talent into law and financial services (K29) | productivity growth (O49) |