Inequality and the US import demand function
In this paper we investigate the empirical importance of changes in inequality on the demand for imports by examining US data from 1948 to 2007. We find evidence of a long-run relationship of a standard imports equation including income inequality. The existence of a cointegrating equation in imports, income, relative prices and inequality exists not only for aggregate real imports but also for more disaggregated categories as well. The evolution of inequality seems to have a large and positive influence on the demand for imports in the US with the exception of imports of services whereas the impact of inequality on imports of durables is more ambiguous. Our results are robust to alternative methods of estimating cointegration equations.
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