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Costly Investment, Complementarities, International Technological-Knowledge Diffusion and the Skill Premium

Author

Listed:
  • Óscar Afonso

    () (Universidade do Porto)

  • Pedro Neves

    (Universidade do Porto)

  • Maria João Ribeiro Thompson

    () (Universidade do Minho)

Abstract

We examine the behaviour of the skill premium in a two-country general equilibrium growth model assuming (i) technological-knowledge diffusion; (ii) internal costly investment in both physical capital and R&D; and (iii) complementarities between intermediate goods in production. We find that these three economic features affect the steady-state growth rate in both countries. However, only in the imitator country do they influence the skill premium. We also find that the steady-state skill premium in the innovator country is affected by its relative labor productivity rather than by its relative labor endowments. This result contrasts with most skill-biased technological change models and 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 the relative productive advantage of skilled labor.

Suggested Citation

  • Óscar Afonso & Pedro Neves & Maria João Ribeiro Thompson, 2010. "Costly Investment, Complementarities, International Technological-Knowledge Diffusion and the Skill Premium," NIPE Working Papers 19/2010, NIPE - Universidade do Minho.
  • Handle: RePEc:nip:nipewp:19/2010
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    Keywords

    technological-knowledge bias; skill premium; complementarities; costly investment; technological-knowledge diffusion;

    JEL classification:

    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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