Diffusion and directed technological knowledge, human capital and wages

a r t i c l e i n f o JEL classification: F43 J31 O31 O33 Keywords: Technological knowledge International trade Human capital Wage inequality By connecting the North–South diffusion and the bias of non-scale technological knowledge and by considering endogenous human capital, we relate the technological-knowledge diffusion with levels, inter-country gaps, growth rates, wage-inequality paths and specialisation patterns. Inter-country gaps fall towards the steady state and the South produces more final goods at the end of the adjustment process. Moreover, it exports relatively more final goods of the type that uses more intensively the relatively abundant human capital and imitated intermediate goods. However, outputs, wages and prices remain different and differences in prices originate the intra-country wage-inequality paths observed in developed and developing countries, since the early 1980s. Overall, empirical evidence detects, in developed (North) and developing (South) countries, strong technological-knowledge progress, a rise in the proportion of skilled labour, a rise in wage inequality in favour of skilled labour and enlarged international-trade flows, since The aim of this paper is to develop an endogenous growth model consistent with these facts. We follow and contribute to two main lines of research: technological-knowledge diffusion growth models (e.g., Grossman and Helpman, 1991); and wage-inequality growth models (e.g., Acemoglu and Zilibotti, 2001). Neither the former nor the latter models attest to all the above trends. The former models ignore wage-inequality analysis. The latter models tend to exclude international technological-knowledge diffusion, are dominated by labour levels and comprise two rival approaches (e. b), predicts , however, a rise in relative unskilled wage in developing unskilled abundant countries; 1 (ii) the skill-biased technological change (SBTC) approach , rooted in the market-size effect on the technological-knowledge bias that drives wages (e.g., Acemoglu, 2002), predicts, in turn, a rise in relative unskilled technological knowledge and thus in relative unskilled wage in skilled abundant developed countries due to enlarged trade with developing ones. The international technological-knowledge diffusion through trade allows us to connect the two wage-inequality approaches, as is empirically suggested (e.g., Jaumotte et al., 2009). We assume that the North is more productive due to better institutions , higher human capital and innovative R&D (e.g., Aghion and Howitt, 1992). Southern R&D results are imitations of innovations and it has a marginal cost advantage in production (e.g., Grossman and Helpman, 1991). Thus, the South imports intermediate goods, where R&D is applied, that have not yet been …