From Global Trade to Local Inequality: The Role of International Relocation of Production

We study whether the global expansion of exports from lower-income economies raises within-country inequality by constructing a country-level index of exposure to the international relocation of production (IRP). Using HS-6 trade data covering approximately 5,000 products and a comprehensive panel of 168 countries over 1996–2017, the index quantifies the extent to which each country’s initial export basket subsequently became exported by poorer or richer economies. Applying dynamic-panel estimation techniques, we find that greater exposure to IRP toward the Global South significantly increases within-country inequality. The effect is distinct from, and robust to, overall trade openness. For the three largest economies (US, China, and Japan), the exposure to IRP can account for between 20% and 40% of the rise in their Gini coefficients between 1996 and 2017. The effect operates by reducing the income share of the lower-middle and middle groups (10th to 70th percentiles), while increasing the share of the top 10% of earners. Our approach generalizes “China-shock†insights to a broader, multi-country relocation process.