We study the effect of international trade on interregional income inequality from 1992 to 2012 in the majority of countries worldwide using satellite night-light-based inequality proxies. For our analysis, we develop novel indicators for within-country heterogeneity in trade costs that are based on exogenous geographical features. In order to deal with potential endogeneity issues, we apply a gravity-style instrument that utilizes the occurrence of large natural disasters striking trade partners, as well as a Bartik-style instrument. In contrast to previous studies, our IV estimates reveal that international trade aggravates economic disparities only in those countries that have a higher within-country heterogeneity in terms of their access to the world market and their within-country trade costs.