Directed technological change with costly investment and complementarities, and the skill premium

We develop an extended directed technological change model with R&D driven growth to analyze the growth rate, technological-knowledge bias, skill premium and industrial structure, assuming: (i) complementarities between intermediate goods in production, and (ii) internal costly investment. We find that complementarities directly affect equilibrium technological-knowledge bias, both elements influence equilibrium growth rate and neither affects skill premium and industrial structure. We also find that equilibrium skill premium is independent of relative labour endowments, being determined solely by workers' productivities, suggesting that the persisting increase in wage inequality observed in several developed countries over the last decades may have been due to increases in productivity advantages of skilled workers favoured by technological development.