Developing countries are net importers of capital goods including machinery and
equipment. Imported technology, embedded in capital goods (and high quality
processed intermediate inputs), is superior to indigent technology and is
complementary to skills. This paper empirically studies the impact of capital goods
imports on the skill premium in the context of China’s drastic trade liberalization.
Empirical tests using both firm surveys and household surveys confirm that (1)
importers of capital goods hire more skilled workers and pay hire average wages; and
(2) skill premium is higher in provinces with more imports of capital goods and
intermediate inputs.