Impact of Trade on Inequality: New Evidence of What, When, and Where

Abstract The relationship between trade and inequality is complex, the existing literature concludes that impacts of on are ambiguous. This article addresses this ambiguity presents robust evidence effects depend economic development, when it occurred in recent decades, their various measures. It proposes a novel identification strategy to solve for endogeneity problem by using as predicted gravity equation an instrument actual trade. estimates effect both policies volumes measured before after taxes transfers. takes advantage large long panel data conducting cross-examinations development history. results show international exacerbates pre-taxes, but disappear transfers adjusted; thus, supports compensation hypothesis. increases rich economies while reducing poor economies, which confirms standard Stolper Samuelson theorem. Post-1991 experience was increasing pre-1991 decreasing; however, opening regulations, taxes, tariffs always increasing. (JEL codes: D63, P33, F63)