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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. Inégalité des revenus et prix des exportations entre pays. Ce texte étudie les liens entre l'inégalité des revenus dans un pays de destination et le pattern de commerce et de prix à l'exportation à la fois au plan théorique et empirique. Le cadre théorique relie l'inégalité des revenus à la qualité et aux prix des produits en utilisant un simple effet de composition de la demande. Le modèle prédit que plus la distribution des revenus est inégale dans le pays de destination, plus les prix moyens seront élevés, même si cet effet est non‐linéaire et disparaît pour les pays suffisamment riches. Les prédictions sont validées en utilisant des données détaillées au niveau de la firme. Contrôlant pour le revenu per capita, on montre que les prix sont systématiquement plus élevés dans les destinations où la distribution des revenus est plus inégale, et que l'intensité de cet effet dépend du niveau de revenu per capita. Ces résultats sont particulièrement importants pour les pays à niveau de revenu moyen et ne tiennent que pour les produits différenciés, et en particulier pour les produits à forte différenciation verticale.

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  • Lisandra Flach & Eckhard Janeba, 2017. "Income inequality and export prices across countries," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 50(1), pages 162-200, February.
  • Handle: RePEc:wly:canjec:v:50:y:2017:i:1:p:162-200
    DOI: 10.1111/caje.12254
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    Cited by:

    1. Bastos, Paulo & Silva, Joana, 2010. "The quality of a firm's exports: Where you export to matters," Journal of International Economics, Elsevier, vol. 82(2), pages 99-111, November.
    2. Latzer, Hélène & Mayneris, Florian, 2021. "Average income, income inequality and export unit values," Journal of Economic Behavior & Organization, Elsevier, vol. 185(C), pages 625-646.
    3. Erick Sager & Olga A. Timoshenko, 2019. "The double EMG distribution and trade elasticities," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 52(4), pages 1523-1557, November.
    4. 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.
    5. Fontagné, Lionel & Secchi, Angelo & Tomasi, Chiara, 2018. "Exporters’ product vectors across markets," European Economic Review, Elsevier, vol. 110(C), pages 150-180.
    6. Andrea Ciani, 2021. "Income inequality and the quality of imports," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 157(2), pages 375-416, May.
    7. Lionel Fontagné & Angelo Secchi & Chiara Tomasi, 2016. "The Fickle Fringe and the Stable Core: Exporters' Product Mix Across Markets," Working Papers hal-01315601, HAL.
    8. Olga A. Timoshenko & Erick Sager, 2017. "Uncertainty and Trade Elasticities," Working Papers 2017-8, The George Washington University, Institute for International Economic Policy.
    9. Miao, Zhuang & Li, Yifan & Duan, Sisong, 2020. "Income inequality of destination countries and trade patterns: Evidence from Chinese firm-level data," MPRA Paper 99441, University Library of Munich, Germany.
    10. Christiana Manu, 2021. "Effect of Globalization on Income Inequality in Ghana," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 13(2), pages 1-15, February.

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    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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