Imported intermediate digital inputs and income inequality

Yanne Gabriella Velomasy, Yueling Wei, Hongsheng Zhang and Laixun Zhao

Journal of Comparative Economics, 2026, vol. 54, issue 2, 537-553

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 (search for similar items in EconPapers)
JEL-codes: F16 J31 O33 (search for similar items in EconPapers)
Date: 2026
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jcecon:v:54:y:2026:i:2:p:537-553

DOI: 10.1016/j.jce.2026.01.002

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