We use an augmented gravity model to revisit the effect of similarity in income distributions on bilateral trade flows. Disentangling supply-side and demand-side mechanisms, we document a robust new regularity: while differences in average incomes between two countries increase trade,...

In standard trade theory, consumption is normally assumed to be homothetic. Consequently, income and its distribution have no role in determining international trade patterns. This paper examines the assumption and its implications. The assumption of homothetic preferences is rejected at...

We investigate the theoretical relationship between wage concentration and international market integration. Access to imported varieties lowers the cost of intermediate inputs (“machines”) used to carry out production tasks, causing workers with different comparative abilities to be sorted...