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Vertical product differentiation and the import demand function: theory and evidence

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Author Info
Jim Malley
Thomas Moutos

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Abstract

In this paper we use a model of vertical product differentiation to cast doubt on the general validity of the import demand function as specified in macroeconomic models. The empirical importance of our theoretical concerns is then established. According to our first hypothesis, the share of a good's imports in total imports is non-increasing in domestic wages if the country has comparative advantage in high-quality varieties of this good. The second hypothesis states that the share of a good's imports is increasing in non-wage domestic income if the country has comparative advantage in high-quality varieties of this good.

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Publisher Info
Article provided by Canadian Economics Association in its journal Canadian Journal of Economics.

Volume (Year): 35 (2002)
Issue (Month): 2 (May)
Pages: 257-281
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Handle: RePEc:cje:issued:v:35:y:2002:i:2:p:257-281

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Find related papers by JEL classification:
F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Rose, Andrew K. & Yellen, Janet L., 1989. "Is there a J-curve?," Journal of Monetary Economics, Elsevier, vol. 24(1), pages 53-68, July. [Downloadable!] (restricted)
  2. Dixon, Huw David & Rankin, Neil, 1994. "Imperfect Competition and Macroeconomics: A Survey," Oxford Economic Papers, Oxford University Press, vol. 46(2), pages 171-99, April. [Downloadable!] (restricted)
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  3. Dornbusch, Rudiger, 1987. "Exchange Rates and Prices," American Economic Review, American Economic Association, vol. 77(1), pages 93-106, March.
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  4. Hausman, Jerry A, 1978. "Specification Tests in Econometrics," Econometrica, Econometric Society, vol. 46(6), pages 1251-71, November. [Downloadable!] (restricted)
  5. Obstfeld, Maurice, 1982. "Aggregate Spending and the Terms of Trade: Is There a Laursen-Metzler Effect?," The Quarterly Journal of Economics, MIT Press, vol. 97(2), pages 251-70, May. [Downloadable!] (restricted)
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  6. Benavie, Arthur, 1973. "Imports in Macroeconomic Models," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 14(2), pages 530-32, June. [Downloadable!] (restricted)
  7. Greenaway, David & Hine, Robert C & Milner, Chris, 1995. "Vertical and Horizontal Intra-industry Trade: A Cross Industry Analysis for the United Kingdom," Economic Journal, Royal Economic Society, vol. 105(433), pages 1505-18, November. [Downloadable!] (restricted)
  8. Rose, Andrew K., 1991. "The role of exchange rates in a popular model of international trade : Does the 'Marshall-Lerner' condition hold?," Journal of International Economics, Elsevier, vol. 30(3-4), pages 301-316, May. [Downloadable!] (restricted)
  9. Falvey, Rodney E., 1981. "Commercial policy and intra-industry trade," Journal of International Economics, Elsevier, vol. 11(4), pages 495-511, November. [Downloadable!] (restricted)
  10. Bhargava, Alok, 1986. "On the Theory of Testing for Unit Roots in Observed Time Series," Review of Economic Studies, Blackwell Publishing, vol. 53(3), pages 369-84, July. [Downloadable!] (restricted)
  11. R. Dornbusch & S. Fischer & P. A. Samuelson, 1976. "Comparative Advantage, Trade and Payments in a Ricardian Model With a Continuum of Goods," Working papers 178, Massachusetts Institute of Technology (MIT), Department of Economics.
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  12. James A. Brander, 1995. "Strategic Trade Policy," NBER Working Papers 5020, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  13. Dixon, H.D., 1992. "Imperfect Competition and Open Economy Macroeconomics," Economics Working Papers 1993-1, School of Economics and Management, University of Aarhus.
  14. Krugman, P., 1993. "What Do We Need to Know About the International Monetary System?," Princeton Studies in International Economics 190, International Economics Section, Departement of Economics Princeton University,.
  15. Flam, Harry & Helpman, Elhanan, 1987. "Vertical Product Differentiation and North-South Trade," American Economic Review, American Economic Association, vol. 77(5), pages 810-22, December. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Margarita Katsimi & Thomas Moutos, 2005. "Inequality and Relative Reliance on Tariffs: Theory and Evidence," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
  2. Adam, Antonis & Moutos, Thomas, 2002. "The Political Economy of EU Enlargement: Or, Why Japan is not a Candidate Country?," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
  3. Adam, Antonis / Katsimi, Margarita / Moutos, Thomas, 2008. "Inequality and the Import Demand Function," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
  4. Jim Malley & Thomas Moutos, 2004. "Do excessive wage increases raise imports? Theory and evidence," Macroeconomics 0401003, EconWPA. [Downloadable!]
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