International trade affects consumption prices, with potentially different impacts on poor and rich consumers. We study these unequal impacts building on the Almost Ideal Demand System (AIDS) gravity model of Fajgelbaum and Khandelwal (2016). We augment the original model with a home bias in tastes and allow for trade costs to differ for domestic and foreign trade. In this setup, we show that the structural parameters governing the welfare gains are highly sensitive to the determinants of spending on domestic goods. This extension largely weakens the pro-poor bias of trade which leads us to conclude that the AIDS gravity framework does not generate robust results about the distributive effects of trade within countries.

This paper develops a novel method to estimate inequality within a country based on what it imports. If preferences are non-homothetic, rich and poor individuals in a country have different consumption profiles. Observing imports can thus inform us about the income distribution in a country. The global availability of trade data allows us to estimate inequality using the same 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 to gauge the performance of our method.

This paper studies how foreign demand affects product quality specialization in international trade. In a model with non-homothetic CES preferences, firms choose quality levels based on global demand conditions, and countries with better access to high-income markets host more high-end producers. As a result, they export relatively more to rich destinations, where demand for quality is stronger. Using bilateral product-level trade data, I test this prediction by examining whether countries with higher “foreign market potential”—a trade-cost-weighted measure of access to rich consumers—export disproportionately more to higher-income destinations. A 10 percent increase in market potential raises the income elasticity of exports by 2.7 percentage points—three times the effect of domestic income. The findings highlight the role of economic integration across development levels in shaping specialization patterns.