Imported Intermediate Digital Inputs and Income Inequality

Yanne Gabriella Velomasy, Hongsheng Zhang and Laixun Zhao
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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

No DP2026-01, Discussion Paper Series from Research Institute for Economics & Business Administration, Kobe University

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)
Pages: 41 pages
Date: 2026-01
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