About the long-term distributional impact of embodied technological progress (without spillover effects) in developing countries

This paper addresses the distributional long-term effects on a developing economy of the sophistication of its productive capacity—and narrowing of the technology gap with the advanced countries—based on embodied technological progress. Our proposed economy consists of three sectors: one producing final goods; one producing intermediate goods and one that adopts existing technologies with a certain degree of inefficiency. We assume perfect mobility of labor and capital. From this, we characterize the optimal decisions for distributing resources in the long term. Contradicting the literature on the complementarity of capital and skills in the presence of technological change, our model predicts scenarios where, given certain structural conditions in the economy, income inequality can be reduced.