Advanced Search
MyIDEAS: Login to save this paper or follow this series

Import Prices, Income, and Inequality

Contents:

Author Info

  • Eddy Bekkers

    ()
    (Johannes Kepler University Linz)

  • Joseph Francois

    ()
    (CEPR and Johannes Kepler University Linz)

  • Miriam Manchin

    ()
    (University College London)

Abstract

We compare three theoretical explanations for the positive empirical relationship between importer income per capita and traded goods prices. A first explanation is that consumers with higher incomes demand higher quality goods with higher prices. A second explanation is that wealthier people exhibit an increased willingness to pay for necessary goods as more goods enter the consumption set in a hierarchic demand system, and can thus be charged higher markups. A third explanation is that consumers with higher incomes are more finicky regarding their preferred variety in an ideal variety framework and can thus be charged higher markups. We discriminate between these three theories by focusing on the e↵ect of income inequality on trade prices. Based on a large dataset with bilateral HS6 level data on 1260 final goods categories from more than 100 countries between 2000 and 2004, we find a highly significant negative effect of income inequality on unit values. This contradicts both the demand for quality and finickyness theories, while providing support for the increased willingness to pay theory linked to hierarchic demand. These findings on income inequality do not falsify the quality expansion model and the ideal variety model per se. However, the results do argue for place of importance of hierarchic demand.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.i4ide.org/content/wpaper/dp20120201.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Institue for International and Development Economics in its series IIDE Discussion Papers with number 20120201.

as in new window
Length: 44 pages
Date of creation: Feb 2012
Date of revision:
Handle: RePEc:lnz:wpaper:20120201

Contact details of provider:
Postal: Lichtenauerlaan 102, 3062 ME Rotterdam
Email:
Web page: http://www.i4ide.org/
More information through EDIRC

Related research

Keywords: Hierarchic Demand; Ideal Variety; Importer Characteristics; Quality Expansion; Unit Values;

Other versions of this item:

Find related papers by JEL classification:

References

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.:
as in new window
  1. Ina Simonovska, 2010. "Income Differences and Prices of Tradables: Insights from an Online Retailer," NBER Working Papers 16233, National Bureau of Economic Research, Inc.
  2. Choi, Yo Chul & Hummels, David & Xiang, Chong, 2009. "Explaining import quality: The role of the income distribution," Journal of International Economics, Elsevier, vol. 77(2), pages 265-275, April.
  3. Cong S. Pham, 2007. "Product Specialization in International Trade: A Further Investigation," Economics Series 2007_14, Deakin University, Faculty of Business and Law, School of Accounting, Economics and Finance.
  4. Chang-Tai Hsieh & Peter J. Klenow, 2003. "Relative prices and relative prosperity," Proceedings, Federal Reserve Bank of San Francisco, issue Nov.
  5. Haskel, Jonathan & Wolf, Holger, 2001. " The Law of One Price--A Case Study," Scandinavian Journal of Economics, Wiley Blackwell, vol. 103(4), pages 545-58, December.
  6. Fajgelbaum, Pablo & Grossman, Gene M. & Helpman, Elhanan, 2011. "Income distribution, product quality, and international trade," Policy Research Working Paper Series 5843, The World Bank.
  7. David Hummels & Volodymyr Lugovskyy, 2009. "International Pricing in a Generalized Model of Ideal Variety," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 41(s1), pages 3-33, 02.
  8. Philip Sauré, 2012. "Bounded Love of Variety and Patterns of Trade," Open Economies Review, Springer, vol. 23(4), pages 645-674, September.
  9. Peter K. Schott, 2004. "Across-product Versus Within-product Specialization in International Trade," The Quarterly Journal of Economics, MIT Press, vol. 119(2), pages 646-677, May.
  10. Pinelopi K. Goldberg & Michael M. Knetter, 1996. "Goods Prices and Exchange Rates: What Have We Learned?," NBER Working Papers 5862, National Bureau of Economic Research, Inc.
  11. Goldberg, Pinelopi K. & Verboven, Frank, 2005. "Market integration and convergence to the Law of One Price: evidence from the European car market," Journal of International Economics, Elsevier, vol. 65(1), pages 49-73, January.
  12. Robert E. Lipsey & Birgitta Swedenborg, 1997. "Wage Dispersion and Country Price Levels," NBER Working Papers 6039, National Bureau of Economic Research, Inc.
  13. Guimaraes, Paulo & Portugal, Pedro, 2009. "A Simple Feasible Alternative Procedure to Estimate Models with High-Dimensional Fixed Effects," IZA Discussion Papers 3935, Institute for the Study of Labor (IZA).
  14. Ina Simonovska, 2010. "Income differences and prices of tradables," Globalization and Monetary Policy Institute Working Paper 55, Federal Reserve Bank of Dallas.
  15. Joseph F. Francois & Douglas Nelson, 1998. "A Geometry of Specialization," Tinbergen Institute Discussion Papers 98-006/2, Tinbergen Institute.
  16. Maskus, Keith E. & Yongmin Chen, 2000. "Vertical price control and parallel imports - theory and evidence," Policy Research Working Paper Series 2461, The World Bank.
  17. Muhammed Dalgin & Vitor Trindade & Devashish Mitra, 2008. "Inequality, Nonhomothetic Preferences, and Trade: A Gravity Approach," Southern Economic Journal, Southern Economic Association, vol. 74(3), pages 747-774, January.
  18. James R. Markusen, 2010. "Putting Per-Capita Income Back into Trade Theory," NBER Working Papers 15903, National Bureau of Economic Research, Inc.
  19. Pinelopi Koujianou Goldberg & Frank Verboven, 1998. "The Evolution of Price Dispersion in the European Car Market," NBER Working Papers 6818, National Bureau of Economic Research, Inc.
  20. Atish R. Ghosh & Holger C. Wolf, 1994. "Pricing in International Markets: Lessons from The Economist," Working Papers 94-21, New York University, Leonard N. Stern School of Business, Department of Economics.
  21. Gene M. Grossman & Edwin C.-L. Lai, 2006. "Parallel Imports and Price Controls," NBER Working Papers 12423, National Bureau of Economic Research, Inc.
  22. Hallak, Juan Carlos, 2006. "Product quality and the direction of trade," Journal of International Economics, Elsevier, vol. 68(1), pages 238-265, January.
  23. Richard Baldwin & James Harrigan, 2007. "Zeros, Quality and Space: Trade Theory and Trade Evidence," NBER Working Papers 13214, National Bureau of Economic Research, Inc.
  24. Matteo Bugamelli & Roberto Tedeschi, 2008. "Pricing-to-Market and Market Structure," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 70(2), pages 155-180, 04.
  25. George Alessandria & Joseph Kaboski, 2007. "Pricing-to-market and the failure of absolute PPP," Working Papers 07-29, Federal Reserve Bank of Philadelphia.
  26. Robert E. Lipsey & Birgitta Swedenborg, 2007. "Explaining Product Price Differences Across Countries," NBER Working Papers 13239, National Bureau of Economic Research, Inc.
  27. Gene M. Grossman & Edwin L.-C. Lai, 2008. "Parallel imports and price controls," RAND Journal of Economics, RAND Corporation, vol. 39(2), pages 378-402.
  28. Francois, Joseph F & Kaplan, Seth, 1996. "Aggregate Demand Shifts, Income Distribution, and the Linder Hypothesis," The Review of Economics and Statistics, MIT Press, vol. 78(2), pages 244-50, May.
  29. 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.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Hélène LATZER & Florian MAYNERIS, 2012. "Income distribution and vertical comparative advantage Theory and evidence," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2012018, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES), revised 20 Oct 2012.
  2. Lisandra Flach & Eckhard Janeba, 2013. "Income Inequality and Export Prices across Countries," CESifo Working Paper Series 4298, CESifo Group Munich.
  3. Robert C. Feenstra & John Romalis, 2012. "International Prices and Endogenous Quality," NBER Working Papers 18314, National Bureau of Economic Research, Inc.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:lnz:wpaper:20120201. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (iide webmaster).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.