The role of human capital and innovation in economic development: evidence from post-Malthusian Prussia

Abstract

The effect of human capital on growth involves multiple channels. On the one hand, an increase in human capital directly affects economic growth by enhancing labor productivity in production. On the other hand, human capital is an important input into R&D and therefore increases labor productivity indirectly by accelerating technological change. In addition, different types of human capital such as basic and higher education or training-on-the-job might play different roles in both production and innovation activities. We merge individual data on valuable patents granted in Prussia in the late nineteenth-century with county-level data on literacy, craftsmanship, secondary schooling, and income tax revenues to explore the complex relationship between various types of human capital, innovation, and income. We find that the Second Industrial Revolution can be seen as a transition period when it comes to the role of human capital. As in the preceding First Industrial Revolution, "useful knowledge" embodied in master craftsmen was related to innovation, especially of independent inventors. As in the subsequent 20 th century, the quality of basic education was associated with both workers' productivity and firms' R&D processes. In a final step, we show that literacy had also a negative effect on fertility which increased with innovation. In general, our findings support the notion that the accumulation of basic human capital was crucial for the transition to modern economic growth.

Fiscal Policy, Economic Growth and Innovation: An Empirical Analysis of G20 Countries

“…In recent years, innovation has also had an important place in various empirical studies related to economic growth, conducted at both regional and national levels (Teixeira and Fortuna 2004;Canton, et al 2005;Batabyal and Nijkamp 2013;Akinwale et al 2012;Vogel 2012;Jean 2012;Cinnirella and Streb 2013). These studies mostly emphasize that innovation, frequently arising from R&D activities, is the main engine of a growing economy.…”

“…First, human capital can directly enhance total factor productivity. Second, it might strengthen technological activities of firms by innovations, imitations, or adoption of new technologies (Romer 1990;Benhabib and Spiegel 1994;Teixeira and Fortuna 2004;Cinnirella and Streb 2013). In their Schumpeterian endogenous growth model, Aghion and Howitt (1992) showed that R&D activities can lead to innovation is a prerequisite for technological progress, which will determine economic growth in a Schumpeterian creative destruction process.…”

Technology transfer via foreign patents in Germany, 1843–77

“…See, for example, Baten et al., ‘Southwest German firms’; Burhop, ‘Transfer of patents’; Burhop and Wolf, ‘German market’; Cinnirella and Streb, ‘Human capital’; Richter and Streb, ‘Catching‐up’; Streb et al., ‘Technological knowledge spillover’; Streb et al., ‘Knowledge spill‐over from new to old industries’.…”

Modern secondary education and economic performance: the introduction of the Gewerbeschule and Realschule in nineteenth‐century Bavaria†

“…Cinnirella and Streb, ‘Role of human capital’. Cinnirella and Streb use the number of high‐valuable patents held in Prussian counties as a proxy for innovativeness.…”

“…349–50. See also Streb, Wallusch, and Yin, ‘Knowledge spill‐over’; Richter and Streb, ‘Catching‐up’; Cinirella and Streb, ‘Role of human capital’.…”