Recovering Within-Country Inequality from Trade Data

Abstract This paper develops a novel method to estimate inequality within a country based on what the country imports. If preferences are non-homothetic, rich and poor individuals of a country have different consumption profiles. Imports can thus inform about the income distribution in a country. The global availability of trade data allows us to estimate inequality using a single transparent and comparable method for a large sample of countries over time. Compared to conventional data, we feature an especially good coverage of developing countries. We provide a number of robustness checks and cross-validation exercises that show the good performance of our method.