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Price Convergence in the Enlarged Internal Market

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

No 76, CASE Network Reports from CASE-Center for Social and Economic Research

Abstract: In this paper we investigate the effects of EU enlargement on price convergence. The internal market is expected to boost integration and increase efficiency and welfare through a convergence of prices in product markets. Two principal drivers are crucial to explain price developments. On the one hand, higher competition exerts a downward pressure on prices because of lower mark ups. On the other hand, the catching up process of low income countries leads to a rise in the price levels and higher inflation over a transition period. Using comparative price levels for individual product categories price convergence can be established. However, the speed of convergence is rather slow, with half lives around 10 years. The enlargement has slightly stimulated the convergence process, and this impact is robust across different groups of countries. Moreover, the driving forces of convergence are explored. In line with theoretical predictions, the rise in competition exerts a downward pressure on prices, Chile catching up of low income countries leads to a rise in price levels

Keywords: EU enlargement; price convergence; catching up and competition (search for similar items in EconPapers)
JEL-codes: C33 E31 F15 (search for similar items in EconPapers)
Pages: 68 Pages
Date: 2007
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Related works:
Journal Article: Price Convergence in an Enlarged Internal Market (2008) Downloads
Working Paper: Price Convergence in the Enlarged Internal Market (2007) Downloads
Working Paper: Price convergence in the enlarged internal market (2007) Downloads
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