Inequality and the Import Demand Function
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).
|Date of creation:||2008|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: +49 (89) 9224-0
Fax: +49 (89) 985369
Web page: http://www.cesifo.de
More information through EDIRC
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.:
- Pasaran, M.H. & Im, K.S. & Shin, Y., 1995.
"Testing for Unit Roots in Heterogeneous Panels,"
Cambridge Working Papers in Economics
9526, Faculty of Economics, University of Cambridge.
- Harb, Nasri, 2005.
"Import Demand in Heterogeneous Panel Setting,"
13622, University Library of Munich, Germany.
- Daron Acemoglu, 2002.
"Technical Change, Inequality, and the Labor Market,"
Journal of Economic Literature,
American Economic Association, vol. 40(1), pages 7-72, March.
- Daron Acemoglu, 2000. "Technical Change, Inequality, and the Labor Market," NBER Working Papers 7800, National Bureau of Economic Research, Inc.
- Jim Malley & Thomas Moutos, 2000.
"Vertical Product Differentiation and the Import Demand Function: Theory and Evidence,"
CESifo Working Paper Series
387, CESifo Group Munich.
- Jim Malley & Thomas Moutos, 2002. "Vertical product differentiation and the import demand function: theory and evidence," Canadian Journal of Economics, Canadian Economics Association, vol. 35(2), pages 257-281, May.
- Kinal, T & Lahiri, K, 1993. "On the Estimation of Simultaneous-Equations Error-Components Models with an Application to a Model of Developing Country Foreign Trade," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 8(1), pages 81-92, Jan.-Marc.
- Grossman, Gene M, 1982. "Import Competition from Developed and Developing Countries," The Review of Economics and Statistics, MIT Press, vol. 64(2), pages 271-81, May.
- Sawyer, W. Charles & Sprinkle, Richard L., 1997. "The Demand for Imports and Exports in Japan: A Survey," Journal of the Japanese and International Economies, Elsevier, vol. 11(2), pages 247-259, June.
- Bowen, Harry P & Leamer, Edward E & Sveikauskas, Leo, 1987.
"Multicountry, Multifactor Tests of the Factor Abundance Theory,"
American Economic Review,
American Economic Association, vol. 77(5), pages 791-809, December.
- Harry P. Bowen & Edward E. Leamer & Leo Sveikauskas, 1986. "Multicountry, Multifactor Tests of the Factor Abundance Theory," NBER Working Papers 1918, National Bureau of Economic Research, Inc.
- Rose, Andrew K. & Yellen, Janet L., 1989. "Is there a J-curve?," Journal of Monetary Economics, Elsevier, vol. 24(1), pages 53-68, July.
- Inder, Brett, 1993. "Estimating long-run relationships in economics : A comparison of different approaches," Journal of Econometrics, Elsevier, vol. 57(1-3), pages 53-68.
- Margarita Katsimi & Thomas Moutos, 2006.
"Inequality and the US Import Demand Function,"
CESifo Working Paper Series
1827, CESifo Group Munich.
- Antonis Adam & Thomas Moutos, 2002. "The Political Economy of EU Enlargement: Or, Why Japan is not a Candidate Country?," CESifo Working Paper Series 704, CESifo Group Munich.
- Devashish Mitra & Vitor Trindade, 2003.
"Inequality and Trade,"
NBER Working Papers
10087, National Bureau of Economic Research, Inc.
- 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.
- Gonzalo, Jesus, 1994. "Five alternative methods of estimating long-run equilibrium relationships," Journal of Econometrics, Elsevier, vol. 60(1-2), pages 203-233.
- Markusen, James R, 1986. "Explaining the Volume of Trade: An Eclectic Approach," American Economic Review, American Economic Association, vol. 76(5), pages 1002-11, December.
- Rose, Andrew K., 1991. "The role of exchange rates in a popular model of international trade : Does the 'Marshall-Lerner' condition hold?," Journal of International Economics, Elsevier, vol. 30(3-4), pages 301-316, May.
- Braun, Denny, 1988. "Multiple Measurements of U.S. Income Inequality," The Review of Economics and Statistics, MIT Press, vol. 70(3), pages 398-405, August.
- Houthakker, Hendrik S & Magee, Stephen P, 1969. "Income and Price Elasticities in World Trade," The Review of Economics and Statistics, MIT Press, vol. 51(2), pages 111-25, May.
- Paul Krugman, 1995. "Growing World Trade: Causes and Consequences," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 26(1, 25th A), pages 327-377.
- Mitra, Devashish, 2002. "Endogenous political organization and the value of trade agreements," Journal of International Economics, Elsevier, vol. 57(2), pages 473-485, August.
- Khan, Mohsin S & Knight, Malcolm D, 1988. "Import Compression and Export Performance in Developing Countries," The Review of Economics and Statistics, MIT Press, vol. 70(2), pages 315-21, May.
- Bruce E. Hansen, 1996.
"Sample Splitting and Threshold Estimation,"
Boston College Working Papers in Economics
319., Boston College Department of Economics, revised 12 May 1998.
- Santos-Paulino, Amelia U., 2002.
"The Effects of Trade Liberalization on Imports in Selected Developing Countries,"
Elsevier, vol. 30(6), pages 959-974, June.
- Amelia U. Santos-Paulino, 2001. "The Effects of Trade Liberalisation on Imports in Selected Developing Countries," Studies in Economics 0110, School of Economics, University of Kent.
- Richard B. Freeman, 1995. "Are Your Wages Set in Beijing?," Journal of Economic Perspectives, American Economic Association, vol. 9(3), pages 15-32, Summer.
When requesting a correction, please mention this item's handle: RePEc:ces:ceswps:_2196. 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: (Julio Saavedra)
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.