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Directed technological change with costly investment and complementarities, and the skill premium

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  • Elena Sochirca

    ()
    (Faculdade de Economia, Universidade do Porto)

  • Óscar Afonso

    ()
    (CEF.UP, OBEGEF, Faculdade de Economia, Universidade do Porto)

  • Pedro Mazeda Gil

    ()
    (CEFUP, Faculdade de Economia do Porto, Portugal)

Abstract

We develop an extended directed technological change model with R&D driven growth to analyze the growth rate, technological-knowledge bias, skill premium and industrial structure, assuming: (i) complementarities between intermediate goods in production, and (ii) internal costly investment. We find that complementarities directly affect equilibrium technological-knowledge bias, both elements influence equilibrium growth rate and neither affects skill premium and industrial structure. We also find that equilibrium skill premium is independent of relative labour endowments, being determined solely by workers' productivities, suggesting that the persisting increase in wage inequality observed in several developed countries over the last decades may have been due to increases in productivity advantages of skilled workers favoured by technological development.

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File URL: http://www.fep.up.pt/investigacao/workingpapers/11.01.26_wp401.pdf
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Bibliographic Info

Paper provided by Universidade do Porto, Faculdade de Economia do Porto in its series FEP Working Papers with number 401.

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Length: 21 pages
Date of creation: Jan 2011
Date of revision:
Handle: RePEc:por:fepwps:401

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Keywords: technological-knowledge bias; skill premium; complementarities; costly investment; vertical and horizontal R&D;

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  1. Patrick Francois & Huw Lloyd-Ellis, 2009. "Schumpeterian Business Cycles with Pro-Cyclical R&D," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 12(4), pages 567-591, October.
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