Export Dynamics and Income Inequality: New Evidence on Export Quality

Abstract

Previous literature has highlighted the relationship between export diversification and income inequality. The present study attempts to explore the influence of export quality on income inequality. A global sample of 92 economies consisting of 30 low- and lower-middle-income economies (LMEs), 21 upper-middle-income economies (UMEs), and 41 high-income economies (HIEs) over the period 2002–2014, is collected to create a balanced set of panel data. Using econometric techniques for balanced panel data to deal with cross-sectional dependence, heteroscedasticity, and endogeneity, we first find that the effect of export quality is negative and significant on the Gini index pre-tax and pre-transfer in LMEs and UMEs, implying that export quality reduces income inequality. Second, export quality has a positive and significant impact on income inequality in HIEs. Our findings imply that different economic policies should be considered for dealing with income inequality among different income groups of economies.

Export product quality and inclusivity in developing countries

“…Overall, upgrading export product quality can lead to lower income inequality in lower and middle‐income countries. Nguyen and Su (2022) have provided empirical support for these hypotheses, namely that export product quality exacerbates income inequality in high income countries, but reduces it in lower‐and middle income countries.…”

“…The study by Nguyen and Su (2022) is one of the rare works on the effect of export product quality on income inequality 6 at the macroeconomic level. The authors have hypothesized that upgrading export product quality could result in a higher demand for high-skilled workers at the detriment of unskilled workers, higher premium for skilled workers, and consequently in a greater wages gap among skilled and unskilled workers (e.g., Acharyya & Jones, 2001).…”

“…The absence of significant effects of export product quality improvement on inclusivity indicators in NonLDCs, may yet reflect differentiated effects across NonLDCs, but also a positive within‐country income inequality effect of export product quality improvement in NonLDCs. In support for this, export product quality improvement can exacerbate income inequality in some countries, including high income countries (e.g., Nguyen & Su, 2022).…”