Academic environment, directed technical change, and economic growth

Abstract We investigate the impact of the academic environment on directed technical change and economic growth. We develop a heterogeneous Schumpeterian growth model in which innovation is categorized into radical and incremental types. A supportive environment for academic exploration enhances scientists’ autonomy utility in basic research, thereby motivating basic research and reducing the R&D difficulty of radical innovations through knowledge spillovers. We identify two major effects of the academic environment on economic growth: a positive directed technical change effect fostering growth through radical innovation, and a negative applied research crowding-out effect. Numerical analysis based on Chinese data reveals a negative autonomy utility (−0.37), indicating insufficient autonomy in basic research exploration. Promoting economic growth necessitates institutional reforms. The optimal autonomy utility for maximizing growth is 0.80. Welfare analysis further shows that the optimal autonomy utility is 0.87 for basic research labor and 0.75 for non-basic research labor.