- | Thursday, January 14
- 12:15 PM
- Kaiserplatz 7-9, 4th floor, Room 4.006
The Role of Human Capital and Innovation in Economic Development: Evidence from Post-Malthusian Prussia
The effect of human capital on growth may involve multiple channels. On one side, it can have an indirect effect by facilitating the adoption or creation of new technologies and by influencing fertility patterns. On the other side, human capital can have a direct effect on growth by enhancing the productivity of the labor force. We merge individual data on valuable patents granted in Prussia in the late nineteenth-century with county-level information on literacy and income tax revenues to explore the relationship between human capital, innovation, and income. We find that increases in the stock of human capital not only improved workers’ productivity but also accelerated innovative activity which, in turn, evoked an additional rise in the productivity level. This is especially true for large firms that were engaged in the innovative sectors of the Second Industrial Revolution. Instrumenting the stock of literate people with information on the geographic spread of Protestantism we also estimate the causal effect of human capital on income tax revenues, net of the innovation channel. It turns out that the effect of literacy was strongest in less technologically advanced, less urban, and high-fertility counties. These findings support the notion that the accumulation of basic human capital was crucial for the transition to sustained economic growth.