Ewen Gallic : ewen.gallic[at]univ-amu.fr
Avner Seror : avner.seror[at]univ-amu.fr
This article shows that unequal rates of innovation across socio-demographic groups affect the direction of innovation, in a way that exacerbates inequality in addition to reducing growth. We build new linked datasets on the socio-demographic characteristics of innovators and their customers, and establish three results. First, we find that innovators create products that are more likely to be purchased by customers similar to them along observable dimensions including gender, age, and socio-economic status. These homophily patterns hold across detailed industries as well as across firms within the same industry, in both the United States and Finland. Second, using quasi-random assignment of individuals to dorms during military service in Finland, we provide causal evidence that being exposed to peers from a lower income group increases an entrepreneur’s propensity to create necessity products. The finding is similar with an alterna- tive quasi-experimental research design leveraging idiosyncratic within-school variation in peer composition across classes and cohorts. Finally, we assess the distributional effects of unequal access to innovation in a standard growth model. We find that an “equal opportunity” innova- tor pool would lead to a higher growth rate, as well as to significantly larger welfare gains for lower-income households and for female customers. These results indicate that peer effects can have a significant impact on the direction of innovation, and that equalizing access to innovation across socio-demographic groups has large potential to reduce inequality and increase long-run growth.
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