Functional Distribution of Income as a Determinant of Importing Behavior: An Empirical Analysis

: We examine the impact of the functional distribution of income on the demand for imports in developed and developing countries. Drawing upon a motivating accounting structure suggesting a potentially causal effect of the functional distribution of income in an extended version of a standard import function, we find evidence that a fall in the wage share has a statistically significant positive (negative) impact on the volume of imports in developing (developed) countries and the entire sample of countries. Therefore, the neglect of such income distribution effects in import demand functions represents the omission of both an empirically relevant variable and a further theoretically significant channel through which the functional distribution of income affects output growth. A key implication is that the impact of the functional distribution of the social product on the demand for imports has to be considered in growth empirics based on either a binding balance-of-payments constraint in the Kaldor-Thirlwall tradition or a demand-led regime approach or a competitive real exchange rate . Abstract We examine the impact of the functional distribution of income on the demand for imports in developed and developing countries. Drawing upon a motivating accounting structure suggesting a potentially causal eﬀect of the functional distribution of income in an extended version of a standard import function, we ﬁnd evidence that a fall in the wage share has a statistically signiﬁcant positive (negative) impact on the volume of imports in developing (developed) countries and the entire sample of countries. Therefore, the neglect of such income distribution eﬀects in import demand functions represents the omission of both an empirically relevant variable and a further theoretically signiﬁcant channel through which the functional distribution of income aﬀects output growth. A key implication is that the impact of the functional distribution of the social product on the demand for imports has to be considered in growth empirics based on either a binding balance-of-payments constraint in the Kaldor-Thirlwall tradition or a demand-led regime approach or a competitive real exchange rate. We fruitful and and Arslan Razmi, of MADE Macroeconomics of Inequalities University A preliminary version of paper presented 46th Eastern Economic Association Annual Conference, Boston, MA (USA), February 2020. are grateful to conference participants for helpful comments. Any remaining errors are own.