Technology adoption, education and immigration policy

Abstract

This paper explores a two-period model with complementarities between investment in/adoption of new technologies and human capital accumulation/investment in education. Workers invest in education in the first period and in the second period, entrepreneurs decide whether or not to adopt a new technology. Multiple rational expectation equilibria exist: if workers believe that a large (small) fraction of entrepreneurs will adopt the new technology next period, then their return to education will be high (low) and accordingly the level of investment in education will be high (low) too. Equivalently, entrepreneurs will adopt the new technology if the level of education is sufficiently high. Two policies are considered for ensuring that a welfare improving high-technology equilibrium will prevail, namely educational subsidies and immigration of high-skilled workers. A key result is that a commitment to immigration of high-skilled is sufficient to ensure new technology adoption.©2004 Elsevier B.V. All rights reserved.