Capital accumulation, trade liberalization, and rising wage inequality: The case of Argentina

In Argentina, the capital accumulation can increase the wage gap between skilled and unskilled workers if capital is skill complementary and if it has incorporated skilled-biased technological change. The evidence for developed countries indicates that this phenomenon is important in accounting for the observed increase in the wage premia during the last decades. The country seems to have adopted these results as a consequence of the accelerated capital incorporation process that occurred during 1990s. Combining cross-sectional data and household survey with aggregate data on capital accumulation and import penetration for different manufacturing industries, the study suggests that higher investment in machinery and equipment in particular industry is associated with an increase in the wage premia for skilled workers in that industry. The investment effect seems to have been substantially larger than the trade exposure effect. Other unobserved and time-varying factors correlated with both capital accumulation and returns to education could be playing a role, posing identification problems. Even though the main results hold after considering lagged values of the variables of interest, causality interpretations should be made with caution in the absence of good instrumental values.