Importing Skill-Biased Technology

Capital equipment, such as computers and industrial machinery, embodies skill-biased technology and, hence, is complementary to skilled labor. Many countries, by importing a large share of their capital, import skill-biased technology and a rise in the skill premium. In this paper we develop a model to derive the qualitative and quantitative implications of changes in trade patterns for the skill premium through capital-skill complementarity. In one counterfactual, we find that moving from the trade levels observed in the year 2000 to autarky would imply a decrease in the skill premium of 14% for the median country in our sample, of 5% for the U.S., and of a much larger magnitude for countries that heavily rely on imported capital equipment.