Capital Imports Composition, Complementarities, and the Skill Premium in Developing Countries • Special Seminar, Job Talk

Speaker
Ohad Raveh
Date
14/01/2014 - 12:00 - 10:30Add To Calendar 2014-01-14 10:30:00 2014-01-14 12:00:00 Capital Imports Composition, Complementarities, and the Skill Premium in Developing Countries • Special Seminar, Job Talk Abstract: We study how the composition of capital imports affects relative demand for skill and the skill premium in a sample of developing economies. Capital imports per se do not affect the skill premium; their composition does. While imports of R&D-intensive capital equipment raise the skill premium, imports of less innovative equipment lower the skill premium. We estimate that R&D-intensive capital is complementary to skilled workers, whereas less innovative capital equipment is complementary to unskilled labor— – which explains the composition effect. This mechanism has substantial explanatory power. We document larger tariff cuts and smaller distance-related import costs for R&D-intensive capital equipment versus less innovative equipment, implying that on average trade liberalization increases inequality through the composition channel. JEL classi…cations: F14, F16, J23, J24, J31 Keywords: Capital imports, capital-skill complementarity, skill premium, trade liberalization אוניברסיטת בר-אילן - Department of Economics Economics.Dept@mail.biu.ac.il Asia/Jerusalem public
Affiliation
Hebrew University
Abstract

Abstract: We study how the composition of capital imports affects relative demand for skill and the skill premium in a sample of developing economies. Capital imports per se do not affect the skill premium; their composition does. While imports of R&D-intensive capital equipment raise the skill premium, imports of less innovative equipment lower the skill premium. We estimate that R&D-intensive capital is complementary to skilled workers, whereas less innovative capital equipment is complementary to unskilled labor— – which explains the composition effect. This mechanism has substantial explanatory power. We document larger tariff cuts and smaller distance-related import costs for R&D-intensive capital equipment versus less innovative equipment, implying that on average trade liberalization increases inequality through the composition channel.

JEL classi…cations: F14, F16, J23, J24, J31

Keywords: Capital imports, capital-skill complementarity, skill premium, trade liberalization

Attached file

Last Updated Date : 29/12/2013