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State Incentives for Innovation, Star Scientists and Jobs: Evidence from Biotech

  • Enrico Moretti

    (Berkeley, USA; NBER, USA; CEPR, UK; IZA, Germany)

  • Daniel J. Wilson

    (Federal Reserve Bank of San Francisco, USA; University of Michigan, USA)

We evaluate the effects of state-provided financial incentives for biotech companies, which are part of a growing trend of placed-based policies designed to spur innovation clusters. We estimate that the adoption of subsidies for biotech employers by a state raises the number of star biotech scientists in that state by about 15 percent over a three year period. A 10% decline in the user cost of capital induced by an increase in R&D tax incentives raises the number of stars by 22%. Most of the gains are due to the relocation of star scientist to adopting states, with limited effect on the productivity of incumbent scientists already in the state. The gains are concentrated among private sector inventors. We uncover little effect of subsidies on academic researchers, consistent with the fact that their incentives are unaffected. Our estimates indicate that the effect on overall employment in the biotech sector is of comparable magnitude to that on star scientists. Consistent with a model where workers are fairly mobile across states, we find limited effects on salaries in the industry. We uncover large effects on employment in the non-traded sector due to a sizable multiplier effect, with the largest impact on employment in construction and retail. Finally, we find mixed evidence of a displacement effect on states that are geographically close, or states that economically close as measured by migration flows.

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Paper provided by The Rimini Centre for Economic Analysis in its series Working Paper Series with number 42_13.

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Date of creation: Jul 2013
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Handle: RePEc:rim:rimwps:42_13
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  23. Moretti, Enrico, 2004. "Human capital externalities in cities," Handbook of Regional and Urban Economics, in: J. V. Henderson & J. F. Thisse (ed.), Handbook of Regional and Urban Economics, edition 1, volume 4, chapter 51, pages 2243-2291 Elsevier.
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  26. Timothy J. Bartik, 2004. "Evaluating the Impacts of Local Economic Development Policies on Local Economic Outcomes: What Has Been Done and What Is Doable?," Book chapters authored by Upjohn Institute researchers, in: Evaluating Local Economic and Employment Development: How to Access Waht Works Among Programmes and Policies, pages 113-142 W.E. Upjohn Institute for Employment Research.
  27. Pierre Philippe Combes & Gilles Duranton & Henry G. Overman, 2005. "Agglomeration and the adjustment of the spatial economy-super-�," Papers in Regional Science, Wiley Blackwell, vol. 84(3), pages 311-349, 08.
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  30. Moretti, Enrico, 2004. "Bidding for Industrial Plants: Does Winning a 'Million Dollar Plant' Increase Welfare?," Santa Cruz Department of Economics, Working Paper Series qt5cz0h23t, Department of Economics, UC Santa Cruz.
  31. Rosenthal, Stuart S. & Strange, William C., 2008. "The attenuation of human capital spillovers," Journal of Urban Economics, Elsevier, vol. 64(2), pages 373-389, September.
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  35. Gilles Duranton, 2011. "California Dreamin': The Feeble Case for Cluster Policies," Review of Economic Analysis, Rimini Centre for Economic Analysis, vol. 3(1), pages 3-45, July.
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