Knowledge endowment and composition as dynamic capabilities

A strong disatisfaction with the conception and policy prescriptions regarding competitive advantage put forward by the mainstream approach is the general stimulus stirring the present work. Essentially, in this approach, economic policy prescriptions aiming at enhancing the competitive advantage of economic systems are mainly based on two intertwined foundations: equilibrium in a labour market shaped by wage competition and ubiquitous predominance of the comparative advantage principle. In fact, most of the liberalisation and privatisation strategies as well as ‘structural reform’ policies have been conceived and implemented within this analytic scaffold. The principal research question concerns the role of knowledge and competences in structural economic dynamics and business cycle. In particular, we will study the trade-off between the need of change, flexibility and new human resources inputs faced by the firms in the business cycle downswings and the destruction of knowledge and competences taking place in them. The model is based on a very simplified stylisation of the actual working of the economic system. It offers only an aggregate view of the production process. In particular, it concentrates on the impact on firm productivity of some of its key determinants. Since the economic system is typified by a representative firm, the stress is on international competition between different economic systems, rather than on competition between different firms within each system. Given the importance of productivity dynamics, the model shows that even very simple assumptions concerning its determinants can bring about complex paths that soften usual unilateral conjectures about the causal links between productivity and employment. Different configurations of the ‘competence pipeline’ and the related cost functions are explored.