We introduce …rm and worker heterogeneity into a model of innovation-driven endogenous growth.Individuals who di¤er in ability sort into either a research sector or a manufacturing sector that produces di¤erentiated goods.Each research project generates a new variety of the di¤erentiated product and a random technology for producing it.Technologies di¤er in complexity and productivity, and technological sophistication is complementary to worker ability.We study the co-determination of growth and income inequality in both the closed and open economy, as well as the spillover e¤ects of policy and conditions in one country to outcomes in others.
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