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DIRECTED TECHNOLOGICAL CHANGE: A KNOWLEDGE-BASED MODEL

Published online by Cambridge University Press:  24 July 2013

Tailong Li ,
Shiyuan Pan  and
Heng-fu Zou
Tailong Li
Affiliation:
Zhejiang Sci-Tech University
Shiyuan Pan*
Affiliation:
Zhejiang University
Heng-fu Zou
Affiliation:
Central University of Finance and Economics
*
Address correspondence to: Shiyuan Pan, Center for Research of Private Economy and School of Economics, Zhejiang University, 38 Zheda Road, Hangzhou 310027, People's Republic of China; e-mail: shiyuanpan@zju.edu.cn.
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Abstract

In a knowledge-based growth model where skilled workers are used in innovation and production, skill-biased technological change may lower average R&D productivity via an innovation possibilities frontier effect that eliminates scale effects. We show that skill-biased technological change increases the skill premium even if the elasticity of substitution between skilled and unskilled workers is less than two. Trade between developed countries promotes skill-biased technological change, thus raising wage inequality. Trade between developed and developing countries has differing effects: it induces relatively skill-replacing technological change and lowers wage inequality in the developed country but has the opposite effects in the developing country. Finally, we show that trade can stimulate or hurt economic growth.

Keywords

Directed Technological ChangeScale EffectWage InequalityTrade
Type
Articles
Information
Macroeconomic Dynamics , Volume 19 , Issue 1 , January 2015 , pp. 116 - 143
Copyright
Copyright © Cambridge University Press 2013 

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