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Intermediate Goods–Skill Complementarity

Author

Listed:
  • Kiyota Kozo

    (Keio University, RIETI, and TCER, 2-15-45, Mita, Minato-ku, Tokyo 108-8345 Japan)

  • Kurokawa Yoshinori

    (University of Tsukuba, 1-1-1 Tennodai, Tsukuba, Ibaraki 305-8571 Japan)

Abstract

Recent research has begun to imply intermediate goods–skill complementarity; however, this possible complementarity has been hypothesized but not statistically tested, despite the increasing importance of intermediate goods in production. This study provides statistical evidence regarding whether intermediate goods are more complementary with skilled labor than with unskilled labor. Using panel data from 40 countries over the period 1995–2009, we estimate a two-level constant elasticity of substitution (CES) production function. Our major findings are fivefold. First, at the aggregated one-sector level, the elasticity of substitution between intermediate goods and unskilled labor is 1.22, which is significantly greater than that between intermediate goods and skilled labor of 1.05, indicating intermediate goods–skill complementarity. Second, at the disaggregated level, such complementarity is primarily observed in heavy manufacturing industries and the service sector, whereas complementarity is observed between intermediate goods and unskilled labor in the primary sector and light manufacturing industries. Third, the normalization of the data and the cumulant estimators exhibit stronger results. Fourth, our baseline results are confirmed applying several robustness checks, such as switching skilled and unskilled labor or considering capital–skill complementarity. Finally, intermediate goods–skill complementarity tends to be higher for industries that use more imported intermediate goods.

Suggested Citation

  • Kiyota Kozo & Kurokawa Yoshinori, 2024. "Intermediate Goods–Skill Complementarity," The B.E. Journal of Macroeconomics, De Gruyter, vol. 24(1), pages 149-186, January.
  • Handle: RePEc:bpj:bejmac:v:24:y:2024:i:1:p:149-186:n:4
    DOI: 10.1515/bejm-2023-0008
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    References listed on IDEAS

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    1. Atolia, Manoj & Kurokawa, Yoshinori, 2016. "The impact of trade margins on the skill premium: Evidence from Mexico," Journal of Policy Modeling, Elsevier, vol. 38(5), pages 895-915.
    2. Costas Arkolakis & Arnaud Costinot & Andres Rodriguez-Clare, 2012. "New Trade Models, Same Old Gains?," American Economic Review, American Economic Association, vol. 102(1), pages 94-130, February.
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    Cited by:

    1. Takeuchi, Fumihide, 2023. "Intermediate goods-skill complementarity and income distribution," MPRA Paper 116372, University Library of Munich, Germany.

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    More about this item

    Keywords

    intermediate goods–skill complementarity; elasticity of substitution; CES; skill-biased technological change; imported intermediate goods;
    All these keywords.

    JEL classification:

    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • F10 - International Economics - - Trade - - - General

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