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Income inequality and the quality of imports

Andrea Ciani

No 245, DICE Discussion Papers from University of Düsseldorf, Düsseldorf Institute for Competition Economics (DICE)

Abstract: This paper investigates how income inequality affects the quality of imported products. In a heterogeneous-firms trade model, I show that higher inequality increases total expenditure leading to a reduction in unit value and quality of imported goods. To test this prediction, I employ detailed firm-level trade data for the period 2001- 2006. I empirically document that higher inequality is associated with lower unit value and lower quality of imported products. This negative relation is due to firm-level heterogeneous responses to variations in total expenditure. Incumbent firms react to an increase in total expenditure caused by higher inequality lowering unit values, while firms entering the same market for the first time supply goods of lower quality.

Keywords: Income Inequality; Unit Value; Quality; Trade (search for similar items in EconPapers)
JEL-codes: F14 L11 L15 O15 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-int
Date: 2017
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