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The skill premium and economic growth with costly investment, complementarities and international technological-knowledge diffusion

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  • Oscar Afonso
  • Pedro Neves
  • Maria Thompson

Abstract

We analyse the skill premium and the growth rate in an innovator-imitator general equilibrium growth model assuming (i) internal costly investment in both physical capital and R&D, (ii) complementarities between intermediate goods in production and (iii) technological-knowledge diffusion. We find that in the imitator country these three elements influence the economic growth rate and the skill premium. In the innovator country, while the growth rate is affected by costly investment and complementarities, the skill premium is not affected by any of our assumptions. It depends solely on the productive advantage of high-skilled over low-skilled labour, which suggests that the sustained increase in the skill premium observed in several developed countries over the last three decades may have been due to increases in such productive advantage.

Suggested Citation

  • Oscar Afonso & Pedro Neves & Maria Thompson, 2014. "The skill premium and economic growth with costly investment, complementarities and international technological-knowledge diffusion," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 23(6), pages 878-905, September.
  • Handle: RePEc:taf:jitecd:v:23:y:2014:i:6:p:878-905
    DOI: 10.1080/09638199.2010.544395
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    File URL: http://hdl.handle.net/10.1080/09638199.2010.544395
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    1. Afonso, Oscar & Neves, Pedro Cunha & Thompson, Maria, 2016. "The skill premium and economic growth with costly investment, complementarities and international trade of intermediate goods," Japan and the World Economy, Elsevier, vol. 37, pages 73-86.

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