Working Paper: NBER ID: w28957
Authors: Kirill Borusyak; Xavier Jaravel
Abstract: How much do consumption patterns matter for the impact of international trade on inequality? In neoclassical trade models, the effects of trade shocks on consumers' purchasing power are governed by the shares of imports in consumer expenditures, under no parametric assumptions on preferences and technology. This paper provides in-depth measurement of import shares across the income distribution in the United States, using new datasets linking expenditure and customs microdata. Contrary to common wisdom, we find that import shares are flat throughout the income distribution: the purchasing-power gains from lower trade costs are distributionally neutral. Accounting for changes in wages in addition to prices in a unified nonparametric framework, we find substantial distributional effects that arise within, but not across, income and education groups. There is little impact of a fall in trade costs on inequality, even though trade shocks generate winners and losers at all income levels, via wage changes.
Keywords: trade; inequality; consumption patterns; import shares
JEL Codes: D63; F14; F16; F60
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| trade shocks (F14) | consumer prices (P22) |
| trade shocks (F14) | wages (J31) |
| lower trade costs (F19) | purchasing power gains (F31) |
| lower trade costs (F19) | distributionally neutral effects (D39) |
| trade shocks (F14) | winners and losers (D44) |
| welfare gains from trade (F10) | poorer households (D19) |
| expenditure channel of trade (F10) | distributionally neutral (D39) |