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Imported Intermediate Digital Inputs and Income Inequality

Author

Listed:
  • Yanne Gabriella Velomasy

    (China Academy of Digital Trade, Zhejiang University, Hangzhou, CHINA)

  • Hongsheng Zhang

    (China Academy of Digital Trade, Zhejiang University, Hangzhou, CHINA)

  • Laixun Zhao

    (Research Institute for Economics and Business Administration, Kobe University, JAPAN)

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

  • Yanne Gabriella Velomasy & Hongsheng Zhang & Laixun Zhao, 2026. "Imported Intermediate Digital Inputs and Income Inequality," Discussion Paper Series DP2026-01, Research Institute for Economics & Business Administration, Kobe University.
    • Handle: RePEc:kob:dpaper:dp2026-01
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    File URL: https://www.rieb.kobe-u.ac.jp/academic/ra/dp/English/DP2026-01.pdf
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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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