Innovation and wage inequalities: Evidence from Brazilian regions

Abstract

Innovation can lead to wage inequalities through different channels. This paper explores this relationship, focusing on the direct and spillover (indirect) effects of these channels on personal wage inequalities in Brazilian regions. Product and process innovation are measured by patents and the acquisition of foreign technology through imports of capital goods respectively. Based on data that covers 482 regions from 2003 to 2014, we use the Spatial Durbin Model with spatial fixed effects to control spatial dependence and heterogeneity across regions. The results point to a positive association between our measures of innovation and wage inequalities. However, as we found a non-linear relationship between imports of capital goods and wage inequality, an increase in imports of capital goods may reduce wage inequality. Other variables may also cause inequality to fall, such as the share of the population with a higher education degree and social skills. Drivers behind an increase in inequality are female participation in the workforce and the level of GDP per capita.