Replacing Eq c in to

Replacing Eq. (16c) in to Eq. (20) and the result in Eq. (19): In Eq. (21), we have that the productivity of the economy depends on the Verdoorn coefficient and the effects that the dynamics of the real exchange rate have on the industrial share evolution. In addition, when greater the governmental policies on NIS (via R&D and Ω) and higher technological gap – given the economy capacity of catching up − the greater will be the growth rate of productivity. Thus, the equilibrium rate of economic growth in extended KDT model becomes:with and . From Eq. (22), it can be performed comparative static exercises to check the effects of the real exchange rate, in research and development investment, government policies and technological gap in relation to economic growth rate. Eq. (23) shows that a depreciation in the real exchange rate level has positive effects on growth (considering and the existence of the Marshall–Lerner condition). The effect of the real exchange operates on price competitiveness and non-price competitiveness. In the first case, by increasing the growth rate of industrial share and thus productivity, the depreciation of the real exchange rate reduces the price of domestically produced goods. Exports become cheaper and improve the BOP. In the second case, to improve the profitability of companies and promote structural changes toward more intensive sectors in technology (increased spending on investment in research and innovation, which improves the ability to incorporate technological content and diversify exports), the real exchange also improves non-price competitiveness relaxing the external constraint (increase and cholesterol absorption inhibitors ). Eq. (24) presents the effects of the spending in R&D and the intrinsic capacity of assimilation of spillovers. In terms of price competitiveness, it is observed that elevations in R&D and Ω improve the learning capacity of the economy, which is reflected in higher productivity and thus higher benefits in terms of international trade. In other words, increasing capacity to assimilate and incorporate technological factors reduces the price of domestic products. It must be noted that an improvement in NIS allows a greater growth rate in the industrial share, which implies better use of dynamic effects from this sector (especially those related to increasing returns to scale and greater dissemination of technical progress). In terms of non-price competitiveness, the endogeneity of elasticities with respect to the degree of development of NIS captures this effect. Since an increase in R&D and Ω improves NIS and stimulates the increase in the industrial share, there is greater diversity and technology intensity of national production, which implies a reduction (increase) in imports (exports). Moreover, this effect also captures the result of the expected structural change toward productive diversification and greater industry standardization as a result of higher learning capacity of the economy. The result of Eq. (25) presents that an increase in the technological gap, ceteris paribus, increases the growth rate of . The higher the technology gap of developing countries in relation to the knowledge frontier, the greater will be the so-called advantage of the “late comers”. Obviously, this result should only be kept for countries that have sufficient initial social capacity to undertake catching up. Therefore, countries that manage to get this advantage improve their price competitiveness and non-price competitiveness, allowing them to improve their insertion in international trade and thus loosening the external constraint. Finally, taking into account the modifications developed in the original KDT model, it is convenient to exam the model behavior in terms of its stability in the long run, i.e., the convergence or divergence conditions of the economic growth rate. Using the lagged function of exports and Eqs. (7), (3) and (4) modified by the endogenization of the real exchange rate and the NIS:where: