Deciphering the Knowledge Engine: The Role of Education in Innovation

Estimating a varying coefficients specification using an unbalanced panel of countries spanning the period 1997-2023, we find unambiguous support for the contention that educational attainment has a positive influence on innovation. The estimation results reveal that a one-year increase in mean years of education increases aggregate patent applications of a sample country by 1107, at the 50th percentile of the knowledge capital stock, or about 3.8% of the sample mean patent applications. Second, the innovation response to changes in education becomes stronger in the presence of larger stocks of knowledge capital. Thus, at the 95th percentile of the knowledge capital stock, we find that a one-year increase in the education level raises aggregate patent applications by 1264, or about 4.4% of the sample mean patent applications. This response to a unit-increase in the treatment variable is about 14.2% larger than what we found at the 50th percentile of the stock of knowledge capital, exemplifying the strengthening response at higher levels of the knowledge capital stock. Third, we find that the overall innovation-education response does not hinge upon any individual sector, but rather obtains across all the technology-intensive industry groups, namely, Chemicals, Electricals and Electronics, Machinery (non-electrical), Pharmaceuticals, and Professional and Scientific Equipment. Our results are robust to a number of sensitivity checks.