Fact of the Week: Increasing Research, Education, and University Slots With a 0.5 Percent Subsidy Could Increase Long-Run Growth Between 1 and 4 Percentage Points

Source: Ufuk Akcigit, Jeremy G. Pearce, and Marta Prato, “Tapping into Talent: Coupling Education and Innovation Policies for Economic Growth,” National Bureau of Economic Research, September, 2020.

Commentary: Students often have their career dreams curtailed by harsh financial realities or by longer degree completion times due to increasing demand for higher education. This lack of access to affordable education has the potential to slow economic growth and innovation. Researchers at the National Bureau of Economic Researchers tried to address the scope of this issue by examining which policy mix of research and development subsidies, direct education subsidies, or increasing slots in institutions of higher learning would have the greatest effect on innovation, and thus, economic growth. The authors consider a variety of possible policy options, and find that, on average, a 0.5 percent increase in research, education funding, and university spots increases long-run growth by 2.6, 4.7, and 1.3 percentage points, respectively. Furthermore, they find that, under the optimal policy mix of research and education subsides and larger enrollment, education should be subsidized more initially, with research and university slots receiving more funding later on, as students graduate secondary school and are ready to engage in higher learning and research. Research, education, and access to higher education all play important roles in spurring economic growth. Having a policy that incorporates all three simultaneously could boost long-run growth and innovation.