Bias in estimating border- and distance-related trade costs: Insights from an oligopoly model

A. Kerem Coşar, Paul L.E. Grieco and Felix Tintelnot

Economics Letters, 2015, vol. 126, issue C, 147-149

Abstract: Regressions of price differences between locations in different countries without controlling for the local market structure and the location of origin will lead to a biased estimate of the impact of national boundaries. We demonstrate that non-classical measurement error in distance and unaccounted mark-up differences across countries are responsible for these biases. In a quantitative exercise based on our previous work (Coşar et al., 2014), we show that the estimated border effect with price difference regressions overstates the true border effect by a factor of two or more.

Keywords: Border effect; Trade costs; Oligopoly (search for similar items in EconPapers)
JEL-codes: F10 L13 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:126:y:2015:i:c:p:147-149

DOI: 10.1016/j.econlet.2014.11.034

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