Vertical product differentiation and the import demand function: theory and evidence

Jim Malley and Thomas Moutos

Canadian Journal of Economics, 2002, vol. 35, issue 2, 257-281

Abstract: In this paper we use a model of vertical product differentiation to cast doubt on the general validity of the import demand function as specified in macroeconomic models. The empirical importance of our theoretical concerns is then established. According to our first hypothesis, the share of a good's imports in total imports is non-increasing in domestic wages if the country has comparative advantage in high-quality varieties of this good. The second hypothesis states that the share of a good's imports is increasing in non-wage domestic income if the country has comparative advantage in high-quality varieties of this good.

JEL-codes: F4 F41 (search for similar items in EconPapers)
Date: 2002
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Citations: View citations in EconPapers (9)

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