The Allocation of Talent: Implications for Growth, Issue 3530
National Bureau of Economic Research, 1990 - Economic development - 42 pages
A country's most talented people typically organize production by others, so they can spread their ability advantage over a larger scale. When they start firms, they innovate and foster growth, but when they become rent seekers, they only redistribute wealth and reduce growth. Occupational choice depends on returns to ability and to scale in each sector, on market size, and on compensation contracts. In most countries, rent seeking rewards talent more than entrepreneurship does, leading to stagnation. Our evidence shows that countries with a higher proportion of engineering college majors grow faster; whereas countries with a higher proportion of law concentrators grow slower.
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ability advantage able people become able person absolute advantage allocation of talent Andrei Barro Baumol become entrepreneurs become rent seekers become workers becomes an entrepreneur Bureau of Economic Cobb-Douglas college enrollments comparative advantage compensation contract countries coups determined diminishing returns direct effect earn Economic Research effect of engineers effect of lawyers Engineering and Law engineering enrollments engineers on growth entrepreneur in sector entrepreneurship and growth equilibrium fixed factor GDP per capita government consumption grow growth rate high ability higher human capital improve increasing returns indirect Industrial Revolution industries innovation investment law and engineering lawyers on growth least able entrepreneur level of income National Bureau official output physical capital productive sector profits R-square rate of technological real GDP reduce growth reduced sample regressions rent seeking rent-seeking sector result returns to ability returns to scale revolutions reward superstar technological progress technology shock Vishny wage wealth