Importing Skill-Biased Technology

Abstract

Capital equipment - such as computers and industrial machinery - embodies skill-biased technology, in the sense that it is complementary to skilled labor. Most countries import a large share of their capital equipment, and by doing so import skill-biased technology. In this paper we develop a tractable quantitative model of international trade in capital goods to quantify the extent to which trade, through capital-skill complementarity, raises the relative demand for skill and hence increases the skill premium. In one counterfactual, we find that moving from the trade levels observed in the year 2000 to autarky would decrease the skill premium by 16% in the median country in our sample, by 5% in the US, and by a much larger magnitude in countries that heavily rely on imported capital equipment.