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Import Prices, Income, and Inequality


  • Eddy Bekkers

    () (The Vienna Institute for International Economic Studies, wiiw)

  • Joseph F. Francois

    () (The Vienna Institute for International Economic Studies, wiiw)

  • Miriam Manchin


We compare three theoretical explanations for the positive empirical relationship between importer income per capita and traded goods prices. A first explanation is that consumers with higher incomes demand higher quality goods with higher prices. A second explanation is that wealthier people exhibit an increased willingness to pay for necessary goods as more goods enter the consumption set in a hierarchic demand system, and can thus be charged higher markups. A third explanation is that consumers with higher incomes are more finicky regarding their preferred variety in an ideal variety framework and can thus be charged higher markups. We discriminate between these three theories by focusing on the effect of income inequality on trade prices. Based on a large dataset with bilateral HS6 level data on 1260 final goods categories from more than 100 countries between 2000 and 2004, we find a highly significant negative effect of income inequality on unit values. This contradicts both the demand for quality and finickyness theories, while providing support for the increased willingness to pay theory linked to hierarchic demand. These findings on income inequality do not falsify the quality expansion model and the ideal variety model per se. However, the results do argue for place of importance of hierarchic demand.

Suggested Citation

  • Eddy Bekkers & Joseph F. Francois & Miriam Manchin, 2012. "Import Prices, Income, and Inequality," wiiw Working Papers 82, The Vienna Institute for International Economic Studies, wiiw.
  • Handle: RePEc:wii:wpaper:82

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    References listed on IDEAS

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    Cited by:

    1. Ina Simonovska, 2015. "Income Differences and Prices of Tradables: Insights from an Online Retailer," Review of Economic Studies, Oxford University Press, vol. 82(4), pages 1612-1656.
    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. LATZER, Hélène & MAYNERIS, Florian, 2012. "Income distribution and vertical comparative advantage. Theory and evidence," CORE Discussion Papers 2012034, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    4. Willert, Bianca, 2017. "How intermediates trade affects the formation of free trade agreements: A study analyzing pairwise trade flows of 70 countries," Thuenen-Series of Applied Economic Theory 147, University of Rostock, Institute of Economics.
    5. Robert C. Feenstra & John Romalis, 2014. "International Prices and Endogenous Quality," The Quarterly Journal of Economics, Oxford University Press, vol. 129(2), pages 477-527.
    6. Joachim Stibora & Albert de Vaal, 2015. "Does Preferential Trade Benefit Poor Countries? A General Equilibrium Assessment with Nonhomothetic Preferences," Review of International Economics, Wiley Blackwell, vol. 23(2), pages 239-270, May.
    7. Hélène Latzer & Florian Mayneris, 2011. "Trade in quality and income distribution: an analysis of the enlarged EU market," Working Papers of BETA 2011-21, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
    8. Fabien CANDAU & Florent DEISTING & Julie SCHLICK, 2016. "How Income and Crowding Eects inuence the World Market for French Wines," Working Papers 2015-2016_8, CATT - UPPA - Université de Pau et des Pays de l'Adour, revised Mar 2016.
    9. Ferto, Imre & Bojnec, Stefan, 2015. "Quality upgrading in the European-Union agri-food exports," 89th Annual Conference, April 13-15, 2015, Warwick University, Coventry, UK 204225, Agricultural Economics Society.
    10. Bekkers, Eddy & Simonovska, Ina, 2015. "The Balassa–Samuelson effect and pricing-to-market: The role of strategic complementarity," Economics Letters, Elsevier, vol. 126(C), pages 156-158.
    11. repec:bla:jageco:v:68:y:2017:i:1:p:269-279 is not listed on IDEAS
    12. Ciani, Andrea, 2017. "Income inequality and the quality of imports," DICE Discussion Papers 245, University of Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    13. repec:eee:inecon:v:106:y:2017:i:c:p:55-82 is not listed on IDEAS
    14. repec:bla:worlde:v:40:y:2017:i:5:p:963-977 is not listed on IDEAS

    More about this item


    unit values; importer characteristics; quality expansion; hierarchic demand; ideal variety;

    JEL classification:

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

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