Intra-regional trade and income inequality: Where do we stand?

This paper assesses the link between intra-regional trade and within income inequality. To do so, we use a data sample of nineteen countries in the Asia-Pacific region - one of the most dynamic economic regions. Differing from the existing empirical literature, we employ the gravity model to explain income inequality in function of bilateral trade variables. We find that intra-regional exports can narrow within-country income inequalities, while the opposite tends to be true for intra-regional imports. Moreover, the creation effect of exports on income inequality seems to be dominated by the diversion effect of imports. Our finding also supports the hump-shaped relationship between per capita GDP and within-country income inequality described by the Kuznets curve