Explaining Import Variety and Quality: The Role of the Income Distribution
We examine a generalized version of Flam and Helpmanâ€™s (1987) model of vertical differentiation that maps cross-country differences in income distributions to variations in import variety and price distributions. The theoretical predictions are examined and confirmed using micro data on income from the Luxemburg Income Study for 30 countries over 20 years. The pairs of importers whose income distributions look more similar have more export partners in common and more similar import price distributions. Similarly, the importers whose income distributions look more like the world buy from more exporters and have import price distributions that look more like the world.
The authors would like to thank seminar participants at the Midwest International Meetings, the Federal Reserve Boards of Governors and Purdue, Oregon and Oregon State Universities for helpful comments. We thank Purdue CIBER and the NSF for financial support. The views expressed herein are those of the author(s) and do not necessarily reflect the views of the National Bureau of Economic Research.
Choi, Yo Chul, David Hummels, and Chong Xiang. “Explaining Import Quality: the Role of the Income Distribution." Journal of International Economics 77 (2009): 265-276.