Can trade explain the rising trends in income inequality? Insights from 40 years of empirical studies

There have been concerns that international trade is responsible for rising inequality. However, existing empirical studies provide no consensus on this matter. This article studies the effect of trade on income inequality by applying meta-regression analysis on 40 years of empirical studies. We discover that the disagreement in the literature can be explained by differences in the development levels of the countries chosen by the studies and whether the endogeneity of trade is controlled for. When endogeneity is addressed, we find that trade can reduce income inequality in middle- and high-income countries, but has no statistically significant effects in low-income countries. Therefore, concerns that trade leads to more inequality could be overstated. Our work sheds light on how certain features in an empirical model of inequality on trade could influence the analysis itself, which provides some guidance on empirical design for future research.