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Income inequality and export prices across countries

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  • Lisandra Flach
  • Eckhard Janeba

Abstract

This paper provides theory and evidence on the links between income inequality within a destination country and the patterns of trade and export prices. The theoretical framework relates income inequality to product quality and prices using a simple demand composition effect. The model predicts that a more unequal income distribution in a destination country leads to higher average prices, though the effect is nonlinear and disappears for rich enough countries. The predictions are tested using detailed firm-level data. Controlling for income per capita, prices are systematically higher in more unequal destinations, and the strength of this effect depends on income per capita. Results are particularly important for middle-income countries and hold only for differentiated goods, and in particular for products with a high degree of vertical differentiation.

Suggested Citation

  • Lisandra Flach & Eckhard Janeba, 2017. "Income inequality and export prices across countries," Canadian Journal of Economics, Canadian Economics Association, vol. 50(1), pages 162-200, February.
  • Handle: RePEc:cje:issued:v:50:y:2017:i:1:p:162-200
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    References listed on IDEAS

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    Cited by:

    1. Lionel Fontagné & Angelo Secchi & Chiara Tomasi, 2016. "The Fickle Fringe and the Stable Core: Exporters' Product Mix Across Markets," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-01315601, HAL.
    2. Lisandra Flach & Eckhard Janeba, 2017. "Income inequality and export prices across countries," Canadian Journal of Economics, Canadian Economics Association, vol. 50(1), pages 162-200, February.
    3. Olga A. Timoshenko & Erick Sager, "undated". "Uncertainty and Trade Elasticities," Working Papers 2017-8, The George Washington University, Institute for International Economic Policy.
    4. Lionel Fontagné & Angelo Secchi & Chiara Tomasi, 2016. "The Fickle Fringe and the Stable Core: Exporters' Product Mix Across Markets," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-01315601, HAL.
    5. Ciani, Andrea, 2017. "Income inequality and the quality of imports," DICE Discussion Papers 245, University of Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).

    More about this item

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation

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