Technological-knowledge bias and the industrial structure under costly investment and complementarities

What is it about?

We analyze skill-biased technological development in a more realistic environment of internal capital investment costs, which include R&D expenses. In order to reflect another relevant feature of modern industrialized economies in our baseline model, we introduce the element of complementarity between intermediate goods in final goods production. Thus, we develop an extended directed technological change model with vertical and horizontal R&D to analyze the economic growth rate, the technological-knowledge bias and the industrial structure, assuming: (i) complementarities between intermediate goods, and (ii) internal costly investment. We find that complementarities directly affect long-run technological-knowledge bias and relative production, both elements influence the economic growth rate and neither affects the skill premium and the relative number of firms. We also verify that the relationship between the relative supply of skills and both economic growth and the industrial structure suggested by our model is qualitatively consistent with recent empirical data for a number of developed countries.

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