Average income, income inequality and export unit values *

This paper analyses the relationship between a country's income distribution and its ex-ports' unit values. Using bilateral export flows, we not only confirm the positive associa-tion 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 export unit values in the case of poor countries only. These re-sults 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. (c) 2021 Elsevier B.V. All rights reserved.

Automated summary

This paper examines the relationship between income distribution and export unit values, finding a positive correlation between a country's average income and export unit values, but a heterogeneous relationship with income inequality, particularly in poor countries. The results are robust to controls for other factors and alternative measures, and demand-side mechanisms may partly explain this relationship.