Price convergence in the enlarged internal market

Christian Dreger, Konstantin Kholodilin (), Kirsten Lommatzsch (), Jiri Slacalek and Przemyslaw Wozniak

No 292, European Economy - Economic Papers 2008 - 2015 from Directorate General Economic and Financial Affairs (DG ECFIN), European Commission

Abstract: The studies' main aim is to investigate the effects of the EU-10 enlargement on price convergence within the Internal Market. It distinguishes between the opposite forces provided by: (1) the catching up effect of the EU-10, expected to lead to a rise in price levels; and (2) increased competitiveness pressure on prices expected to lower price levels due to lower mark ups of prices over marginal costs. The study is based on comparative price levels for the EU-25, covering the period 1999-2004. Distinct variables were identified as proxies for the catching-up and competition forces. The following analysis proceeded in two steps. First, it is examined whether price convergence has occurred and, second, what are its main drivers. The results confirm the presence of price convergence. This process is particularly visible in the case of basic headings, most likely because they are related to more homogeneous products. Moreover, both catching up and competition have been important factors for explaining price convergence. In addition, both effects seem to be more pronounced for the EU-10 than for the EU-15.

Keywords: EU enlargement; Internal Market; price convergence; Balassa Samuelson effect; competition; Dreger; Kholodilin; Lommatzsch; Slacalek; Wozniak (search for similar items in EconPapers)
Pages: 93 pages
Date: 2007-11
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

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Related works:
Journal Article: Price Convergence in an Enlarged Internal Market (2008)
Working Paper: Price Convergence in the Enlarged Internal Market (2007)
Working Paper: Price Convergence in the Enlarged Internal Market (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:euf:ecopap:0292

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