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Inequality and the US Import Demand Function

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  • Margarita Katsimi
  • Thomas Moutos

Abstract

In this paper we build a model of trade in vertically differentiated products and find that income inequality can affect the demand for imports even in the presence of homothetic preferences. The empirical importance of changes in inequality on the demand for imports is then assessed by examining US data for the 1948-1996 period. Using the Johansen (1988) procedure we find that there is no evidence of a long run relationship of a standard imports equation (one including imports, income, and relative prices). However, once we include a measure of inequality in our VAR specification we find not only evidence for the existence of a cointegrating equation in imports, income, relative prices and inequality, but that the evolution of inequality has a large and positive influence on the demand for imports in the US. Moreover we find that our results are robust to alternative methods of estimating cointegration equations.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2006/wp-cesifo-2006-10/cesifo1_wp1827.pdf
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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1827.

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Date of creation: 2006
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Handle: RePEc:ces:ceswps:_1827

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Keywords: inequality; US import demand; vertically differentiated products; cointegration;

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References

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Citations

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Cited by:
  1. Margarita Katsimi & Thomas Moutos, 2006. "Inequality and the US Import Demand Function," CESifo Working Paper Series 1827, CESifo Group Munich.
  2. Adam, Antonis & Moutos, Thomas, 2014. "Do capital importing countries pay higher prices for their imports of goods?," Journal of International Money and Finance, Elsevier, vol. 40(C), pages 95-108.
  3. Antonis Adam & Margarita Katsimi & Thomas Moutos, 2012. "Inequality and the import demand function," Oxford Economic Papers, Oxford University Press, vol. 64(4), pages 675-701, October.
  4. Antonis Adam & Thomas Moutos, 2012. "Capital Importers Pay More for their Imports," CESifo Working Paper Series 3723, CESifo Group Munich.

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