Non-gravity trade

This paper examines the relationship between countries’ bilateral trade with the United
States that is not due to gravity (non-gravity trade) and the distribution of income within
countries. In countries where only a small share of the population are educated, an
increase in non-gravity trade is associated with a significant increase in income inequality.
As education of the population increases the correlation between non-gravity trade and
income inequality becomes smaller. Non-gravity trade has no significant effect on income
inequality in countries that are world leaders in education.