RIEB Discussion Paper Series No.2026-01

Title

Imported Intermediate Digital Inputs and Income Inequality

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.

Keywords

Imported intermediate digital input; Income inequality; Workforce skill upgrading

JEL Classification

F16, J31, O33

Inquiries

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
Rokkodai-cho, Nada-ku, Kobe
657-8501 Japan
Phone: +81-78-803-7036
FAX: +81-78-803-7059