Import Prices, Income, and Inequality

Joseph Francois, Miriam Manchin and Eddy Bekkers ()

No 8911, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: 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 e↵ect 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.

Keywords: Hierarchic demand; Ideal variety; Importer characteristics; Quality expansion; Unit values (search for similar items in EconPapers)
JEL-codes: F12 (search for similar items in EconPapers)
Date: 2012-03
New Economics Papers: this item is included in nep-int
References: Add references at CitEc
Citations: View citations in EconPapers (43)

Downloads: (external link)
https://cepr.org/publications/DP8911 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
Journal Article: Import prices, income, and inequality (2012)
Working Paper: Import Prices, Income and Inequality (2012)
Working Paper: Import Prices, Income, and Inequality (2012)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:8911

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP8911

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().