Project Management

Costly Investment, Complementarities, International Technological-Knowledge Diffusion And The Skill Premium

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Executive Summary

The authors examine the behavior of the skill premium in a two-country general equilibrium growth model assuming technological-knowledge diffusion; internal costly investment in both physical capital and R&D; and complementarities between intermediate goods in production. They 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. They 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.

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