Ability-Biased Technical Change and Productivity Bonus in a Nested Production Structure: A Theoretical Model with Endogenous Hicks-Neutral Technology Spillover

This paper develops a model of endogenous trade-mediated productivity spillover in which jointly trade-intensity, capital-intensity of production, and skill-intensity for adoption of technology from an exogenously available stock of world knowledge determine firm's productivity. The representative firm, in the process of maximising profit (or minimising costs), takes into account the benefits of technological improvements embodied in imported intermediates. Sectors with higher skilled labour intensity will have an advantage in extracting the 'bonuses' from spillovers. The framework is useful for exploring technology adoption, considering wage premium, investigating innovative changes in sectors, and analysing productivity differences.