Directed Technological Change : A Knowledge-Based Growth Model

We develop a knowledge-based endogenous growth model to address the issue of directed technological change, in which skilled workers are used both in innovation and consumer goods production. Using the model, we investigate how the direction of technological change influences scale effect and wage inequality. In addition, we examine the impact of trade in intermediate goods on skill premia and economic growth. Since skill-biased technological change may lead to a decrease in the average productivity in R&D sectors, scale effect is removed. Hence, the two facts, accelerated skill-biased technological change and the absence of scale effect, can be jointly accounted for in a unified framework. Free trade in intermediate goods increases the demand for skilled workers in the production of the skill-intensive good, thus inducing skill-biased technological change through the market size effect and an increase in skill premia. Skill-biased technological change has opposite effects on economic growth, therefore open trade stimulates economic growth in some circumstances, and hurts it in other circumstances