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Inequality and the Import Demand Function

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  • Antonis Adam
  • Margarita Katsimi
  • Thomas Moutos

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 panel data for 36 developing and developed countries for the 1980-1997 period. We find significant evidence supporting our prediction that inequality has a large influence on the demand for imports. Moreover we find that, in line with the predictions of our theoretical model, this influence is positive for high-income countries (countries that produce the high quality variety of the vertically differentiated product) and negative for low-income countries (countries that produce the low quality variety of the vertically differentiated product).

Suggested Citation

  • Antonis Adam & Margarita Katsimi & Thomas Moutos, 2008. "Inequality and the Import Demand Function," CESifo Working Paper Series 2196, CESifo Group Munich.
  • Handle: RePEc:ces:ceswps:_2196
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    References listed on IDEAS

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    Cited by:

    1. Antonis Adam & Panos Hatzipanayotou & Thomas Moutos, 2015. "Labour Market Regulation, Fiscal Consolidation, and the Success of Current Account Adjustments," DEOS Working Papers 1517, Athens University of Economics and Business.
    2. Kammas, Pantelis & Litina, Anastasia & Palivos, Theodore, 2013. "The Quality of Public Education in Unequal Societies: The Role of Tax Institutions," MPRA Paper 52193, University Library of Munich, Germany.

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