Essays on the Distribution of Gains from International Trade

International trade costs have fallen significantly over the last few decades. As countries trade more with each other, understanding how gains from trade are distributed within a country becomes crucial.

In the first chapter, I provide a discussion on the measures that are used to quantify gains from trade and discuss why gains from reducing trade barriers are not distributed uniformly across households within a country. I aim to provide a summary of the facts and mechanisms that explain the unequal effect of trade on households' welfare and emphasize the importance of this topic by giving examples from the existing studies.

In the second chapter, I focus on the expenditure pattern of households, which is one of the mechanisms explaining unequal gains, and present some stylized facts on expenditure shares. I document how the shares of agricultural goods, manufacturing goods, and services in total expenditure vary with income and wealth by using consumer expenditure data from the United States (U.S.) and Mexico. I also provide some estimates that indicate that households' expenditure patterns are robust to controlling for their characteristics. These results motivate the quantitative framework that I use in the third chapter.

In the third chapter, I investigate the distributional consequences of trade within countries by considering differences between households’ expenditures, the effect of trade costs on wages, and the impact of these costs on households’ intertemporal consumption-saving decisions. I develop a two-country, multisector dynamic model of trade with heterogeneous households. I calibrate the model to the U.S. and Mexico to analyze the distributional implications of the North American Free Trade Agreement (NAFTA). The results imply that considering three dimensions of heterogeneity—wealth, income, and education—and the interaction between them is crucial in order to measure gains from trade accurately. I find that in both countries, an unanticipated permanent elimination of import tariffs relatively favors the poor within each education level. I also show that although college graduates experience larger gains than non-college workers at the same wealth level, poor non-college workers gain more than rich college graduates. Finally, I find that an anticipated permanent elimination of tariffs results in lower gains than an unanticipated fall, especially for the poor.