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Inequality and the US Import Demand Function

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Author Info
Margarita Katsimi ()
Thomas Moutos ()

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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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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number CESifo Working Paper No. 1827.

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

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

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Find related papers by JEL classification:
F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
O24 - Economic Development, Technological Change, and Growth - - Development Planning and Policy - - - Trade Policy; Factor Movement; Foreign Exchange Policy

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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. Adam, Antonis / Katsimi, Margarita / Moutos, Thomas, 2008. "Inequality and the Import Demand Function," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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