Intermediate Goods-Skill Complementarity

Kozo Kiyota and Yoshinori Kurokawa

No 2019-013, Keio-IES Discussion Paper Series from Institute for Economics Studies, Keio University

Abstract: With the growing importance of intermediate goods, recent studies begin to suggest intermediate goods-skill complementarity and its potential effect on inequality. However, this possible complementarity has not yet been formally tested. This paper conducts a formal test on whether intermediate goods are complements for skilled labor. Using the panel data of 40 countries over the period 1995-2009, we estimate a two-level CES production function. Our results indicate that, at the aggregated one-sector level, the elasticity of substitution between intermediate goods and unskilled labor is significantly greater than that between intermediate goods and skilled labor. This confirms intermediate goods-skill complementarity. At the more disaggregated level, such complementarity is observed mainly in the heavy manufacturing industries and the service sector, whereas substitutability is confirmed in the primary sector and in light manufacturing industries. Moreover, intermediate goods-skill complementarity tends to be higher for industries whose shares of imported intermediate goods are higher.

Keywords: Intermediate goods-skill complementarity; Elasticity of substitution; CES; Skill-biased technological change; Imported intermediate goods (search for similar items in EconPapers)
JEL-codes: E23 J31 O47 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2019-04-25
New Economics Papers: this item is included in nep-lma, nep-mac and nep-tid
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Journal Article: Intermediate Goods–Skill Complementarity (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:keo:dpaper:2019-013

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