Distance and Political Boundaries. Estimating Border Effects under Inequality Constraints

Fernando Borraz, Alberto Cavallo, Roberto Rigobon and Leandro Zipitria

No 2012001, Documentos de trabajo from Banco Central del Uruguay

Abstract: The “border effect” literature finds that political boundaries have a large impact on relative prices, implicitly adding several thousands of miles to trade. In this paper we show that the standard empirical specification suffers from selection bias, and propose a new methodology based on quantile regressions. Using a novel data set from Uruguay, we apply our procedure to measure the segmentation introduced by city borders. We find that when the standard methodology is used, two supermarkets separated by 10 kilometers across two different cities have the same price dispersion as two supermarkets separated by 30 kilometers within the same city; so the city border triples the distance. When our methodology is used, the city border effect becomes insignificant. We further test our method using online prices for the largest supermarket chain in the country, and show that the “online border” is equivalent to the average distance from the online warehouse to the offline stores.

Keywords: Border effect; political borders; price dispersion; quantile regression (search for similar items in EconPapers)
JEL-codes: C14 D40 E31 F40 (search for similar items in EconPapers)
Pages: 45 pages
Date: 2012-08-15
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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Related works:
Journal Article: Distance and Political Boundaries: Estimating Border Effects under Inequality Constraints (2016)
Working Paper: Distance and Political Boundaries: Estimating Border Effects under Inequality Constraints (2012)
Working Paper: Distance and Political Boundaries:Estimating Border Effects under Inequality Constraints (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:bku:doctra:2012001

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