Working Paper Series,
Swedish University of Agricultural Sciences, Department Economics

Abstract: Directed technological change concerns how stocks of factor-augmenting knowledge evolve relative to each other. In a simple framework we show that relative investment rates depend directly on the relative factor shares, and that the resulting evolution of the economy depends on the substitutability between the factors and the nature of the links between the knowledge stocks. We thus generalize and reinterpret existing results. Furthermore, we propose a novel model of spillovers between stocks of factor-augmenting knowledge which results in multiple equilibria when the factors are substitutes. This may have profound implications for the modelling of technological transitions\m such as from `dirty' to `clean' technology, or from low-skill/low-tech to high-skill/high-tech production systems\m and hence for modelling long-run economic change in general.

Keywords: Growth; directed technological change; knowledge spillovers.

JEL-codes: O11; O33

19 pages, May 4, 2012

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