Skill-biased imports, skill acquisition, and migration

Imported capital goods, which embody skill-complementary technologies, can increase the supply of skills in developing countries. Focusing on China and using a shift-share design, we show that city-level capital goods import growth increases the local skill share and that both skill acquisition and migration play a role. We develop and quantify a spatial equilibrium model with these two mechanisms to examine the aggregate effects of capital goods imports, accounting for trade and migration linkages between cities. Counterfactual experiments suggest that the growth in capital goods imports in China between 2000 and 2010 led to a 3.1–7.3 million increase in the stock of college graduates, representing 4.4–10.4% of the total increase over this period, with the increase disproportionately occurring in coastal regions. These endogenous skill supply responses reduce by half the increase in the aggregate skill premium due to capital goods imports.