Price equalization does not imply free trade
Piyusha Mutreja (),
Raymond Riezman () and
Michael Sposi ()
No 2012-010, Working Papers from Federal Reserve Bank of St. Louis
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 in a simple two-country model. We then extend the result to a multi-country 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.
Keywords: Purchasing power parity; International trade (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-int and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4) Track citations by RSS feed
Downloads: (external link)
Journal Article: Price Equalization Does Not Imply Free Trade (2015)
Working Paper: Price Equalization Does Not Imply Free Trade (2013)
Working Paper: Price equalization does not imply free trade (2012)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:fip:fedlwp:2012-010
Ordering information: This working paper can be ordered from
Access Statistics for this paper
More papers in Working Papers from Federal Reserve Bank of St. Louis Contact information at EDIRC.
Bibliographic data for series maintained by ().