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Inequality and the US Import Demand Function

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  • Margarita Katsimi
  • Thomas Moutos

Abstract

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 US data for the 1948-1996 period. Using the Johansen (1988) procedure we find that there is no evidence of a long run relationship of a standard imports equation (one including imports, income, and relative prices). However, once we include a measure of inequality in our VAR specification we find not only evidence for the existence of a cointegrating equation in imports, income, relative prices and inequality, but that the evolution of inequality has a large and positive influence on the demand for imports in the US. Moreover we find that our results are robust to alternative methods of estimating cointegration equations.

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  • Margarita Katsimi & Thomas Moutos, 2006. "Inequality and the US Import Demand Function," CESifo Working Paper Series 1827, CESifo.
    • Handle: RePEc:ces:ceswps:_1827
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    2. Antonis Adam & Margarita Katsimi & Thomas Moutos, 2012. "Inequality and the import demand function," Oxford Economic Papers, Oxford University Press, vol. 64(4), pages 675-701, October.
    3. Antonis Adam & Thomas Moutos, 2012. "Capital Importers Pay More for their Imports," CESifo Working Paper Series 3723, CESifo.
    4. Kammas, Pantelis & Litina, Anastasia & Palivos, Theodore, 2013. "The Quality of Public Education in Unequal Societies: The Role of Tax Institutions," MPRA Paper 52193, University Library of Munich, Germany.
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    8. Chang, Xiao & An, Tongliang & Tam, Pui Sun & Gu, Xinhua, 2020. "National savings rate and sectoral income distribution: An empirical look at China," China Economic Review, Elsevier, vol. 61(C).
    9. Cícero, Vinicius Curti & Lima, Gilberto Tadeu, 2023. "Functional distribution of income as a determinant of importing behavior: An empirical analysis," Structural Change and Economic Dynamics, Elsevier, vol. 65(C), pages 393-405.
    10. Makram El‐Shagi & William C. Sawyer & Kiril Tochkov, 2022. "The income elasticity of import demand: A meta‐survey," Pacific Economic Review, Wiley Blackwell, vol. 27(1), pages 18-41, February.
    11. Ioanna Konstantakopoulou, 2020. "Further Evidence on Import Demand Function and Income Inequality," Economies, MDPI, vol. 8(4), pages 1-12, October.
    12. Xinhua Gu & ChunKwok Lei & Li Sheng & Qingbin Zhao, 2021. "Global current account imbalances and the link between income and consumption inequality," Review of International Economics, Wiley Blackwell, vol. 29(3), pages 557-572, August.
    13. Zuhal Ozbay Das, 2021. "Inequality and the Import Demand in Turkey," Istanbul Journal of Economics-Istanbul Iktisat Dergisi, Istanbul University, Faculty of Economics, vol. 71(71-2), pages 395-410, December.
    14. Sugra Ingilab Humbatova & Natig Gadim-Ogli Hajiyev, 2020. "The Impact of Oil Factor on the Car Import in Azerbaijan," International Journal of Energy Economics and Policy, Econjournals, vol. 10(4), pages 450-462.
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    16. Adam, Antonis & Moutos, Thomas, 2014. "Do capital importing countries pay higher prices for their imports of goods?," Journal of International Money and Finance, Elsevier, vol. 40(C), pages 95-108.

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    Keywords

    inequality; US import demand; vertically differentiated products; cointegration;
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