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Imported intermediate digital inputs and income inequality

Author

Listed:
  • Velomasy, Yanne Gabriella
  • Wei, Yueling
  • Zhang, Hongsheng
  • Zhao, Laixun

Abstract

This paper analyzes the impacts of importing intermediate digital inputs (IDIs) on income inequality between high-skilled and low-skilled workers, using a novel dataset that merges recent EU KLEMS and OECD data for 29 countries and 15 industries for 2008-2020. We find that IDI imports significantly widen income inequality, because such imports are associated with higher technology and capital intensities, which directly increase income inequality by complementing high-skilled labor while substituting for low-skilled labor, and indirectly exacerbate inequality through workforce skill upgrading. Heterogeneity analysis shows that these occur primarily in highly digitalized countries and industries, as well as technology-intensive sectors. We also construct two shift-share instrumental variables, namely the global imported IDI shocks and the global digital export shocks, to address endogeneity.

Suggested Citation

  • Velomasy, Yanne Gabriella & Wei, Yueling & Zhang, Hongsheng & Zhao, Laixun, 2026. "Imported intermediate digital inputs and income inequality," Journal of Comparative Economics, Elsevier, vol. 54(2), pages 537-553.
    • Handle: RePEc:eee:jcecon:v:54:y:2026:i:2:p:537-553
    DOI: 10.1016/j.jce.2026.01.002
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    Keywords

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    JEL classification:

    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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