Costly investment and complementarities in an international trade model with directed technological change

Óscar Afonso, Pedro Cunha Neves and Maria Thompson

Metroeconomica, 2018, vol. 69, issue 1, 195-223

Abstract: We investigate the impacts on the skill premium and on economic growth in an innovator†imitator general equilibrium growth model assuming: (a) directed technological change; (b) international trade of intermediate goods; (c) internal costly investment in both physical capital and R&D; and (d) complementarities between intermediate goods in aggregate production. With trade of intermediate goods, the complementarities degree and investment costs influence the economic growth of both countries, but do not affect the countries' skill premia, which are directed by technological knowledge. Additionally, in agreement with related empirical literature, openness to trade of intermediate goods leads to a higher equilibrium skill premium in both countries, whereas its impact on the common growth rate can vary in sign.

Date: 2018
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