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Explaining Import Variety and Quality: the Role of the Income Distribution

Author

Listed:
  • David Hummels
  • Chong Xiang
  • Yo Chul Choi
Abstract
In this paper we examine whether a generalized version of Flam and Helpman’s (1987) model of vertical differentiation can reconcile three facts. One, countries import only a subset of available varieties. Two, import prices vary across exporters within narrow product categories. Three, US growth in both import variety and import price dispersion has occurred at the same time that the US income distribution has significantly widened. The generalized model maps cross-country differences in income distributions to variation in import variety and price variation. The theoretical predictions are examined and confirmed using panel data on import variety and prices, and detailed income distribution data from the Luxemborg Income Survey (LIS). Country pairs whose income distributions are growing more similar over time have growing similarity in the distribution of their import prices, and in the number of common export sources from which they buy.

Suggested Citation

  • David Hummels & Chong Xiang & Yo Chul Choi, 2010. "Explaining Import Variety and Quality: the Role of the Income Distribution," LIS Working papers 541, LIS Cross-National Data Center in Luxembourg.
    • Handle: RePEc:lis:liswps:541
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    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Cristiana & Teodora Borota, 2011. "World Trade Patterns and Prices: The Role of Productivity and Quality Heterogeneity," Working papers 19, National Bank of Serbia.
    2. Benedetti Fasil, Cristiana & Borota, Teodora, 2013. "World trade patterns and prices: The role of productivity and quality heterogeneity," Journal of International Economics, Elsevier, vol. 91(1), pages 68-81.
    3. Maurice Kugler & Eric Verhoogen, 2012. "Prices, Plant Size, and Product Quality," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 79(1), pages 307-339.
    4. Reto Foellmi & Christian Hepenstrick & Zweimüller Josef, 2018. "International Arbitrage and the Extensive Margin of Trade between Rich and Poor Countries," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 85(1), pages 475-510.
    5. Richard Baldwin & James Harrigan, 2011. "Zeros, Quality, and Space: Trade Theory and Trade Evidence," American Economic Journal: Microeconomics, American Economic Association, vol. 3(2), pages 60-88, May.
    6. Emanuele Bacchiega & Antonio Minniti & Arsen Palestini, 2016. "Quality, distance and trade: A strategic approach," Papers in Regional Science, Wiley Blackwell, vol. 95, pages 165-191, March.
    7. Juan Carlos Hallak, 2010. "A Product-Quality View of the Linder Hypothesis," The Review of Economics and Statistics, MIT Press, vol. 92(3), pages 453-466, August.
    8. Robert C. Feenstra & Alan Heston & Marcel P. Timmer & Haiyan Deng, 2009. "Estimating Real Production and Expenditures across Nations: A Proposal for Improving the Penn World Tables," The Review of Economics and Statistics, MIT Press, vol. 91(1), pages 201-212, February.
    9. Giorgia Giovannetti & Mauro Lanati, 2017. "Do High-Skill Immigrants trigger High-Quality Trade?," The World Economy, Wiley Blackwell, vol. 40(7), pages 1345-1380, July.
    10. Rasmusen, Eric, 2017. "A model of trust in quality and North–South trade," Research in Economics, Elsevier, vol. 71(1), pages 159-170.
    11. Peter McQuade, 2010. "The Evolution of International Trade on the Extensive and Intensive Margins," The Institute for International Integration Studies Discussion Paper Series iiisdp325, IIIS, revised Apr 2010.
    12. Reto Foellmi & Christian Hepenstrick & Josef Zweim ller, 2010. "Non-homothetic preferences, parallel imports and the extensive margin of international trade," Diskussionsschriften dp1009, Universitaet Bern, Departement Volkswirtschaft.
    13. Xuepeng Liu, 2009. "Trade and income convergence: Sorting out the causality," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 18(1), pages 169-195.
    14. Cristiana & Teodora Borota, 2011. "World Trade Patterns and Prices: The Role of Productivity and Quality Heterogeneity," Working papers 19, National Bank of Serbia.
    15. Maurice Kugler & Eric Verhoogen, 2008. "The Quality-Complementarity Hypothesis: Theory and New Evidence from Colombia," CID Working Papers 183, Center for International Development at Harvard University.
    16. Richard Kneller & Zhihong Yu, 2008. "Quality Selection, Chinese Exports and Theories of Heterogeneous Firm Trade," Discussion Papers 08/44, University of Nottingham, GEP.
    17. Bohman, Helena & Nilsson, Desirée, 2007. "MARKET OVERLAP AND THE DIRECTION OF EXPORTS - a new approach of assessing the Linder hypothesis," Working Paper Series in Economics and Institutions of Innovation 86, Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies.
    18. Lionel Fontagné & Guillaume Gaulier & Soledad Zignago, 2007. "Specialisation across Varieties within Products and North-South Competition," Working Papers 2007-06, CEPII research center.

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    JEL classification:

    • D3 - Microeconomics - - Distribution
    • F1 - International Economics - - Trade

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