Skill-Biased Imports, Human Capital Accumulation, and the Allocation of Talent

This paper proposes that imported capital goods, which embody skill-complementary technologies, can lead to an increase in the supply of skill in developing countries like China. By exploiting the cross-prefecture variation in imported capital goods, I show that the surge in imported capital goods encourages human capital accumulation and migration in China. To tackle causality, I instrument a prefecture's import growth of capital goods with that in other regions. There are three main findings. Firstly, the regional difference in imported capital goods can explain 27 percent of the regional difference in college share between 2000 and 2010. A prefecture with a $100 increase in imported capital goods per capita had a 1.4 percentage points increase in college share. Secondly, this paper quantifies the importance of the three channels, namely skill acquisition of local stayers, immigration of skilled workers, and emigration of skilled workers, through which imported capital goods increase college share. I find that the first channel is the most important. Thirdly, I trace out the responses of skill supply to the demand shift. I find that imported capital goods increase college wage premium and the effect attenuates over time with the increase in skill supply. with model: it is fine to mention that K import first increase the demand for for skill by moving the demand curve, and then increase the supply by moving the supply curve?