China and international market integration: Evidence from the law of one price in the Middle East and Africa

Vinh Q.T. Dang, Erin P.K. So, Yu (Alan) Yang and Kenneth Chan

The North American Journal of Economics and Finance, 2020, vol. 54, issue C

Abstract: We model market integration in the Middle East and Africa by analyzing price dispersion and testing the law of one price (LOP) on highly-comparable actual local retail prices of 135 goods and services across 23 countries in the region over the period of 1990–2016. Second-generation panel estimators are applied to four price benchmarks: Regional average, South Africa, China, and US prices. Cross-regional price dispersion diminishes considerably over time up to 2008, particularly for non-tradeables around China price. The test of LOP indicates the percentage of convergent prices is highest in China price benchmark, followed by US, South Africa, and regional average benchmarks. Direct estimation of the convergence speed confirms this order. Overall, the results show evidence of increasing market integration in Middle East and Africa but it appears to be driven by global forces and, especially, the rise of China as a new economic power. The results show that some emerging market economies, such as China, can step up and promote integration while traditional economic powerhouses, such as the USA and UK, disengage from international economic relations.

Keywords: Middle East and Africa; Economic integration; Law of one price; Convergence; Price dispersion; China (search for similar items in EconPapers)
JEL-codes: E31 F31 F36 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:54:y:2020:i:c:s106294081930292x

DOI: 10.1016/j.najef.2019.101127

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