Understanding Long-run Price Dispersion

Mario Crucini (mcrucini@purdue.edu) and Hakan Yilmazkuday

No 18811, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We use a unique panel of retail prices spanning 123 cities in 79 countries from 1990 to 2005, to uncover six novel properties of long-run international price dispersion. First, at the PPP level, virtually all (91.6%) of price dispersion is attributed to service-sector wages, consistent with a dominant role of the retail distribution margin. Second, at the level of individual goods and services, the average contribution of service-sector wages is significantly reduced, one-third as large (31.9%). This reflects the fact that good-specific sources of price dispersion, such as trade costs and good-specific markups, tend to average out across goods. Third, at the LOP level, borders and distance contribute about equally to price dispersion with distance elasticities consistent with the existing trade gravity literature which links trade volumes (rather than relative prices) to borders and distance. Fourth, in the cross-section, price dispersion is rising in the distribution share consistent with the notion that baby-sitting services and haircuts embody local wages to a far greater extent than highly traded manufactured goods. Fifth, we provide the first estimates of distribution margins at the micro-level and show them to be very different across goods and substantial in the aggregate, where they account for about 55% of consumption expenditure. Sixth, these estimates are broadly consistent with more aggregated U.S. NIPA measures currently used in the literature.

JEL-codes: F0 F11 F15 F63 (search for similar items in EconPapers)
Date: 2013-02
New Economics Papers: this item is included in nep-geo and nep-opm
Note: IFM ITI
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

Published as Crucini, Mario J. & Yilmazkuday, Hakan, 2014. "Understanding long-run price dispersion," Journal of Monetary Economics, Elsevier, vol. 66(C), pages 226-240.

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Related works:
Journal Article: Understanding long-run price dispersion (2014)
Working Paper: Understanding Long-run Price Dispersion (2014)
Working Paper: Understanding Long-run Price Dispersion (2013)
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