A competitive general equilibrium model of technology transfer,innovation, and obsolescence

A general equilibrium production model is developed where technologies are embodied in capital goods of different vintages indexed in a continuum. A difference in the extent of existing knowledge determines a wage gap between a developed (north) and a developing region (south). With free flow of technology, relatively backward technologies move to the south. With innovation in the north, a technology cycle is created by which some of the technologies are pushed out of the north into the south. This also tends to widen the wage gap between the regions.