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Capital-skill complementarity and regional inequality: A spatial general equilibrium analysis

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  • Lecca, Patrizio
  • Persyn, Damiaan
  • Sakkas, Stelios

Abstract

This paper employs a large scale numerical spatial general equilibrium model featuring capital-skill complementarities in production to study the distributional implications of a capital-augmenting technological shift across regions and skills groups. Similarly to the existing literature, we find a negative relationship between the labour income share and the capital labour-ratio. Our counterfactual shows that the effects are quite uneven across skills and regions, benefiting mostly high-skilled workers at the detriment of the low and the medium skilled. This is particularly so in more developed regions compared with less developed ones. We show that the effects stem from regional initial conditions, and in particular the regional capital–labour ratio, trade linkages and unemployment rates.

Suggested Citation

  • Lecca, Patrizio & Persyn, Damiaan & Sakkas, Stelios, 2023. "Capital-skill complementarity and regional inequality: A spatial general equilibrium analysis," Regional Science and Urban Economics, Elsevier, vol. 102(C).
    • Handle: RePEc:eee:regeco:v:102:y:2023:i:c:s0166046223000728
    DOI: 10.1016/j.regsciurbeco.2023.103937
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    More about this item

    Keywords

    Capital-skill complementarity; Technological change; Wage inequality; Regional inequality; Computable general equilibrium models;
    All these keywords.

    JEL classification:

    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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