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Local costs of distribution, international trade costs and micro evidence on the law of one price

Rahul Giri

Journal of International Economics, 2012, vol. 86, issue 1, 82-100

Abstract: This paper connects trade flows to deviations from the law of one price (LOOP) in a structural model of trade and retailing. It accounts for the observed cross-country dispersion in prices of goods, based on retail price survey data, by focusing on two sources of goods market segmentation — (i) international trade costs, and (ii) non-traded input costs of distribution. I find that a multi-sector Ricardian trade model, ala Eaton–Kortum, augmented with a distribution sector, can account for the average price dispersion for a basket of goods fully and generates 70% of the variation in price dispersion across goods within the basket. While tradability of goods is important in explaining the average price dispersion for the basket of goods, distribution costs are important in explaining why, within the basket, some goods show more price dispersion than others.

Keywords: Trade; International trade costs; Distribution costs; Law of one price; Price dispersion (search for similar items in EconPapers)
JEL-codes: F11 F15 (search for similar items in EconPapers)
Date: 2012
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Related works:
Working Paper: Local Costs of Distribution, International Trade Costs and Micro Evidence on the Law of One Price (2010) Downloads
Working Paper: Local Costs of Distribution, International Trade Costs and Micro Evidence on the Law of One Price (2009) Downloads
Working Paper: Local Costs of Distribution, International Trade Costs and Micro Evidence on the Law of One Price (2008) Downloads
Working Paper: Local Costs of Distribution, International Trade Costs and Micro Evidence on the Law of One Price (2008) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:eee:inecon:v:86:y:2012:i:1:p:82-100

DOI: 10.1016/j.jinteco.2011.08.011

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