Trade ties and economic divides: trade and income inequality in the regions of Europe

Pardy, Martina and Rodríguez-Pose, Andrés ORCID: 0000-0002-8041-0856 (2025) Trade ties and economic divides: trade and income inequality in the regions of Europe. Growth and Change. ISSN 0017-4815 (In Press)

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Abstract

This paper analyses how trade influences intra-regional income inequality across Éurope’s NUTS-2 regions. Drawing on newly compiled datasets capturing both inter-regional trade and local-level inequality for all ÉU member states plus the UK, we employ an econometric framework —complete with Instrumental Variable estimations and robust sensitivity analyses— to gauge the impact of trade on regional interpersonal inequality. In addition to examining aggregate trade, we distinguish between various trade channels, including exchanges within the ÉU versus those with the rest of the world, links to neighbouring regions versus non-neighbours, and domestic versus international flows. Our findings reveal that higher levels of trade are positively associated with changes in regional income inequality, as measured by the Gini coefficient. Crucially, this link depends on trading partners: trade within a single country, within the ÉU, and with non-neighbouring regions correlates with rising inequality, whereas international trade, trade with non-ÉU partners, or trade with neighbouring regions shows no statistically significant effect. These conclusions withstand a battery of robustness checks, including new control variables and a population-weighted approach, further underscoring the role that particular types of trade play in shaping regional income disparities.

Item Type:	Article
Additional Information:	© 2025 The Author(s)
Divisions:	Geography and Environment Middle East Centre International Inequalities Institute
Subjects:	H Social Sciences > HB Economic Theory H Social Sciences > HF Commerce
JEL classification:	D - Microeconomics > D6 - Welfare Economics > D63 - Equity, Justice, Inequality, and Other Normative Criteria and Measurement F - International Economics > F1 - Trade > F14 - Country and Industry Studies of Trade R - Urban, Rural, and Regional Economics > R1 - General Regional Economics > R13 - General Equilibrium and Welfare Economic Analysis of Regional Economies
Date Deposited:	06 May 2025 11:09
Last Modified:	09 May 2025 20:10
URI:	http://eprints.lse.ac.uk/id/eprint/128063

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