A search for key sectors in the UK economy is undertaken, in terms of those generating labour cost saving and product improvements, the effect from which spill over into the remainder of the economy.

Fingold and Soskice (1988) argue that Britain is trapped in a "low-skills" equilibrium. In Redding (1996), this notion is formalized in a dynamic model which relies on strategic complementarities between firms' investments in R&D and workers' investments in human capital. In this paper, we...