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Input quality and skills are complementary and increase output quality: Causal evidence from Ecuador’s trade liberalization

Maria Bas and Caroline Paunov ()

Journal of Development Economics, 2021, vol. 151, issue C

Abstract: This paper tests for the production complementarity between firms’ access to high-quality intermediate inputs and their skill composition and their joint impact on output quality. Using census data at firm-product level for Ecuador for 1997–2007, we exploit exogenous tariff changes at Ecuador’s entry to the World Trade Organization to show that input tariff cuts allow firms to upgrade their input quality. Next, we demonstrate by means of within-firm instrumental variable estimations that firms’ choices of imported input quality drive their relative demand for skilled labor and the skill premium. Imported input quality and firms’ skill-composition jointly boost firms’ output quality. Moreover, we show that firms that source domestic inputs produced by industries that import high-quality inputs also upgrade their skills and output quality. Our findings are not driven by our measures of quality, foreign demand shocks (export opportunities), Ecuador’s financial crisis, real exchange rate variations, financial liberalization and other industry-level reforms.

Keywords: Foreign input quality; Input-skill complementarity; Skill intensity and skill premium; Output product quality; Input tariff reductions; Firm-product-level data; Ecuador (search for similar items in EconPapers)
JEL-codes: D22 F16 L6 O12 O30 O54 (search for similar items in EconPapers)
Date: 2021
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Related works:
Working Paper: Input quality and skills are complementary and increase output quality: Causal evidence from Ecuador’s trade liberalization (2021)
Working Paper: Input quality and skills are complementary and increase output quality: Causal evidence from Ecuador’s trade liberalization (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:deveco:v:151:y:2021:i:c:s030438782100047x

DOI: 10.1016/j.jdeveco.2021.102668

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