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.