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    Capital imports composition, complementarities, and the skill premium in developing countries

    Access Status
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    Authors
    Raveh, Ohad
    Reshef, A.
    Date
    2016
    Type
    Journal Article
    
    Metadata
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    Citation
    Raveh, O. and Reshef, A. 2016. Capital imports composition, complementarities, and the skill premium in developing countries. Journal of Development Economics. 118: pp. 183-206.
    Source Title
    Journal of Development Economics
    DOI
    10.1016/j.jdeveco.2015.07.011
    Additional URLs
    http://www.elsevier.com/locate/issn/03043878
    ISSN
    0304-3878
    URI
    http://hdl.handle.net/20.500.11937/62826
    Collection
    • Curtin Research Publications
    Abstract

    © 2015 Elsevier B.V.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; in contrast, their composition does. While imports of R&D-intensive capital equipment raise the skill premium, imports of less innovative equipment lower it. 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. Variation in tariffs, freight costs and overall barriers to trade, over time and across types of capital, favors imports of skill-complementary capital over other types. We calculate that reductions in barriers to trade increase inequality substantially in developing countries through the composition channel.

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