EconPapers    
Economics at your fingertips  
 

Price equalization does not imply free trade

Piyusha Mutreja (), B Ravikumar, Raymond Riezman () and Michael Sposi ()

No 129, Globalization Institute Working Papers from Federal Reserve Bank of Dallas

Abstract: In this paper we show that price equalization alone is not sufficient to establish that there are no barriers to international trade. There are many barrier combinations that deliver price equalization, but each combination implies a different volume of trade. Therefore, in order to make statements about trade barriers it is necessary to know the trade flows. We demonstrate this first theoretically in a simple two-country model. We then extend the result quantitatively to a multicountry model with two sectors. We show that for the case of capital goods trade, barriers have to be large in order to be consistent with the observed trade flows. Our model also implies that capital goods prices look similar across countries, an implication that is consistent with data. Zero barriers to trade in capital goods will deliver price equalization in capital goods, but cannot reproduce the observed trade flows in our model.

JEL-codes: F1 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2012
New Economics Papers: this item is included in nep-int
Note: Published as: Mutreja, Piyusha, B. Ravikumar, Raymond Riezman and Michael Sposi (2015), "Price Equalization Does Not Imply Free Trade," Federal Reserve Bank of St. Louis Review 97 (4): 323-339. Also published as: Mutreja, Piyusha, B. Ravikumar, Raymond Riezman and Michael Sposi (2014), "Price Equalization, Trade Flows, and Barriers to Trade," European Economic Review 70: 383-398.
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3) Track citations by RSS feed

Downloads: (external link)
http://www.dallasfed.org/assets/documents/institute/wpapers/2012/0129.pdf (application/pdf)

Related works:
Journal Article: Price Equalization Does Not Imply Free Trade (2015) Downloads
Working Paper: Price Equalization Does Not Imply Free Trade (2013) Downloads
Working Paper: Price equalization does not imply free trade (2012) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:feddgw:129

Access Statistics for this paper

More papers in Globalization Institute Working Papers from Federal Reserve Bank of Dallas Contact information at EDIRC.
Bibliographic data for series maintained by ().

 
Page updated 2021-10-20
Handle: RePEc:fip:feddgw:129