Trade and Inequality: A Sufficient-Statistics Approach

Sergey Nigai and Dongkyu Yang

Journal of Political Economy Macroeconomics, 2024, vol. 2, issue 3, 508 - 552

Abstract: We develop a sufficient-statistics approach for calculating the effects of international trade on within-country income inequality. In a class of models in which changes in within-sector inequality are only generated via linear profit sharing between individuals and firms, observing changes in two statistics—bilateral trade flows and the share of exporters—is sufficient for measuring trade-induced changes in inequality. This holds in the models with heterogeneous firms and monopolistic competition of Arkolakis, Costinot, and Rodriguez-Clare, which our approach complements, requiring minimal additional data and allowing one to calculate the effects of trade on various inequality measures.

Date: 2024
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