Abstract:
This paper analyzes how human and physical capital affect the productivity of science departments. As inputs are often chosen on the basis of unobservable productivity factors and high quality scientists attract more funding for physical capital, I use two extensive shocks to identify the relative importance of human and physical capital. As a shock to physical capital I use department level destruction by Allied bombings during WWII. As human capital shock I use the dismissal of mostly Jewish scientists in Nazi Germany. Using data on German and Austrian science departments from 1926 to 1980, I find that a 10 percent shock to physical capital lowered productivity by about 0.05 of a standard deviation in 1950. A 10 percent shock to human capital lowered productivity by about 0.2 of a standard deviation. Departments that experienced a large shock to physical capital recovered very quickly (by 1961). The human capital shock, however, persisted until the end of my sample period (1980). Additional results show that the loss of `star scientists’ had particularly large adverse effects on the long-run productivity of science departments.