Working Paper: NBER ID: w20331
Authors: Pablo D. Fajgelbaum; Amit K. Khandelwal
Abstract: Individuals that consume different baskets of goods are differentially affected by relative price changes caused by international trade. We develop a methodology to measure the unequal gains from trade across consumers within countries. The approach requires data on aggregate expenditures and parameters estimated from a non-homothetic gravity equation. We find that trade typically favors the poor, who concentrate spending in more traded sectors.
Keywords: trade; welfare; inequality; nonhomothetic demand; gravity equation
JEL Codes: D63; F10; F60
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| trade (F19) | welfare (I38) |
| lower-income individuals (I32) | affected by price changes in essential goods (D11) |
| gains from trade (F11) | biased towards poorer consumers (D12) |
| trade (F19) | price changes in essential goods (P22) |
| price changes in essential goods (P22) | welfare (I38) |
| trade (F19) | relative price of low-income elastic goods (P22) |