International Transmission of Inequality through Trade

Nigai, Sergey

doi:10.1257/pol.20230497

Abstract

I examine the international transmission of income inequality through trade. Using firm-level and aggregate data, I find that exporting to more unequal countries increases domestic inequality. I rationalize this finding by developing a model of international consumer targeting in which firms serve specific consumer segments in each market. Inequality in export markets shapes the distribution of firms' profits and, therefore, the incomes of individuals linked to them, widening domestic inequality. The calibrated model suggests that the international inequality transmission explains 4.4% and 4.8% of the observed levels of the Gini coefficients and income shares of the top 1%, respectively.

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Economic Policy