Saturday, April 26, 2008

Chinese Imports and the American Poor

Filed under the category of 'stuff you should know but won't hear from the media or Presidential candidates', well except for maybe John McCain. China gets vilified for a lot of things. Helping to improve the standard of living of the poor shouldn't be one of them. From Christian Broda and John Romalis (h/t Greg Mankiw)

We document that much of the rise of income inequality has been offset by a relative decline in the price index of the poor [....]

We find that inflation for households in the lowest tenth percentile of income has been 6 percentage points smaller than inflation for the upper tenth percentile over this period. The lower inflation at low income levels can be explained by three factors: 1) The poor consume a higher share of non-durable goods —whose prices have fallen relative to services over this period; 2) the prices of the set of non-durable goods consumed by the poor has fallen relative to that of the rich; and 3) a higher proportion of the new goods are purchased by the poor.

We examine the role played by Chinese exports in explaining the lower inflation of the poor. Since Chinese exports are concentrated in low-quality non-durable products that are heavily purchased by poorer Americans, we find that about one third of the relative price drops faced by the poor are associated with rising Chinese imports.

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