DP15887 Average income, income inequality and export unit values

Author(s): Helene Latzer, Florian Mayneris
Publication Date: March 2021
Date Revised: March 2021
Keyword(s): export unit values, Home Market Effect, income distribution, product quality, Trade
JEL(s): F12, L15, O15
Programme Areas: International Trade and Regional Economics, Development Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=15887

This paper analyses the relationship between a country's income distribution and its exports' unit values. Using bilateral export flows, we not only confirm the positive association between a country's average income and its export unit values, but further identify a heterogeneous relationship with income inequality: we find a greater income spread to be associated with higher exports unit values in the case of poor countries only. These results are robust to the inclusion of controls for other determinants of export unit values, as well as to the use of alternative measures of income inequality and of the quality index. We finally discuss various theoretical rationalisations for this heterogeneous relationship between income inequality and the quality content of exports along the average income dimension, and show suggestive evidence that demand-side mechanisms can account for it at least partly.