Abstract
How unequal are the gains from trade? This paper develops a structural framework to quantify the consequences of international trade on welfare of consumers across the income distribution, allowing for non-homothetic demand and endogenous quality choices by firms. Using random coefficients demand estimation techniques, I infer demand and supply parameters, as well as household-specific price indexes for more than 3,000 distinct industries and find the gains from trade to be moderately unequal except in wealthier and small economies. Further, not accounting for endogenous vertical differentiation would overstate the impact of trade on cost-of-living inequality by close to 50%.
Random-Coefficients Logit Demand Estimation with Zero-Valued Market Shares