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Innovative and absorptive capacity effects of education in a small open economy

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Evidence points to relatively low supply elasticities for workers skilled for research and development (R&D), which can hamper innovation and growth. Increasing the supply of R&D skills will expand an economy's innovative capacity. A simultaneous effect of increased education, which is particularly important for small, open economies, is to raise final goods producers' capacity to absorb cross-border knowledge spillovers. In a calibrated endogenous growth model for Norway, we find that increasing the share of highly educated workers has pronounced absorptive capacity effects that partially crowd out R&D-based innovation. Both innovative and absorptive capacity expansions contribute to higher growth and welfare.

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  • Brita Bye & Taran Fæhn, 2012. "Innovative and absorptive capacity effects of education in a small open economy," Discussion Papers 694, Statistics Norway, Research Department.
  • Handle: RePEc:ssb:dispap:694
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    Keywords

    Absorptive capacity; Computable general equilibrium model; Endogenous growth; Human capital; Innovation; Research and Development;

    JEL classification:

    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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