the level of household income. Only a few publications explore this question, though, primarily because of data limitations. As previously highlighted by Goldberg and Pavcnik (2007a), household surveys so far have had a limited focus on the selfemployed and a poor response rate to consumption questions. Despite these challenges, the literature on consumption effects of trade integration has evolved in recent years, both in terms of methodological innovations and the aspects of globalization being studied (box 2.4). Whereas initial studies used reducedform methods that relied on household consumption surveys and simulated price changes at the product group level (Deaton 1989; Porto 2006), more recent studies have used structural models with cross-country trade flows to quantify these impacts (Fajgelbaum and Khandelwal 2016). There has also been a growing interest in the shifts in purchasing patterns of households from traditional stores to foreign retailers, which
BOX 2.4 New Approaches to Measure Consumption Impacts New methodologies. One innovation is the use of reduced-form and quantitative trade models to quantify the impact of trade integration on income inequality through its effects on the price index relevant to individuals with different income levels using the methodology outlined by Deaton (1989). The most heavily cited study is that of Porto (2006), who explores the impact of Argentina’s trade reform on consumers by combining scheduled Argentine tariff changes under the Southern Common Market (MERCOSUR) with household expenditure shares across seven consumption sectors to simulate household inflation differences. Since then, several studies have analyzed consumption and income channels to estimate the net effects of tariff reforms for developed and developing countries on welfare (Borusyak and Jaravel 2018; Hasan, Mitra, and Ural 2007; Nicita 2009; Nicita, Olarreaga, and Porto 2014; Ural Marchand 2012). Other studies have used quantitative trade models to estimate the impacts of changes in tariffs on consumption (Fajgelbaum and Khandelwal 2016). New aspects of globalization. Shifting the focus away from changes in traditional measures of trade (like tariffs or export prices), a few recent studies have concentrated on other aspects of globalization (like retail trade and tariff reductions for intermediate inputs). Atkin et al. (2018) attempt to capture the first-order effects of retail globalization by using a rich collection of microdata to assess the consequences of expanding foreign direct investment in the retail sector in Mexico. Faber (2014) examines Mexico’s entry into the North American Free Trade Agreement to study the effect of input tariff reductions on the price changes of final goods of different quality. He shows that access to imported inputs reduces the relative price of higher-quality products in the country.
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The Distributional Impacts of Trade
