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


  • Óscar Afonso

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

  • Pedro Neves

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

  • Maria Thompsom

    () (NIPE, and Escola de Economia e Gestão da Universidade do Minho)


We examine the behavior 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 Thompsom, 2010. "Costly Investment, Complementarities, International Technological-Knowledge Diffusion and the Skill Premium," FEP Working Papers 382, Universidade do Porto, Faculdade de Economia do Porto.
  • Handle: RePEc:por:fepwps:382

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    More about this item


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

    JEL classification:

    • 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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