Is the Border Really That Wide?

Janet Ceglowski

Review of International Economics, 2006, vol. 14, issue 3, 392-413

Abstract: This paper analyzes cross‐border price behavior in a three‐dimensional sample of US and Canadian retail prices. Unit‐root tests reveal that a majority of the cross‐border relative price series are stationary and that short‐run cross‐border price differences are eliminated at average speeds comparable to those for intranational prices. Cross‐border convergence is not absolute; the long‐run international price differences average two to three times their intranational counterparts. Moreover, gravity‐type equations reveal a border effect that is sizable but considerably smaller than earlier estimates. These results suggest that, while significant, the Canada–US border may not be the formidable barrier portrayed in previous studies.

Date: 2006
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