Technological-knowledge bias and the industrial structure under costly investment and complementarities

- We develop an extended directed technological change model.
- R&D, complementarities and internal costly investment are considered.
- Complementarities affect technological-knowledge bias and relative production.
- Technological-knowledge bias and relative production affect economic growth rate.
- They do not affect the skill premium and the relative number of firms.

We develop an extended directed technological change model with vertical and horizontal R&D to analyze the economic growth rate, the technological-knowledge bias and the industrial structure, assuming: (i) complementarities between intermediate goods, and (ii) internal costly investment. We find that complementarities directly affect long-run technological-knowledge bias and relative production, both elements influence the economic growth rate and neither affects the skill premium and the relative number of firms. We also verify that the relationship between the relative supply of skills and both economic growth and the industrial structure suggested by our model is qualitatively consistent with recent empirical data for a number of developed countries.