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Border Effect or Country Effect? Seattle May Not Be So Far from Vancouver After All

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Author Info
Yuriy Gorodnichenko
Linda L. Tesar

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Abstract

This paper reexamines the evidence on the border effect. We argue that if there is cross-country heterogeneity in the distribution of within-country price differentials, there is no clear benchmark from which to gauge the effect of a border. In the absence of a structural model or a (natural) experiment, it is impossible to separate the "border" effect from the effect of trading with a country with a different distribution of prices. We show that the border effect identified by Engel and Rogers (1996) is entirely driven by the difference in the distribution of prices within the United States and Canada. (JEL F11, F14)

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File URL: http://hdl.handle.net/10.1257/mac.1.1.219
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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/mac.1.1.219
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Publisher Info
Article provided by American Economic Association in its journal American Economic Journal: Macroeconomics.

Volume (Year): 1 (2009)
Issue (Month): 1 (January)
Pages: 219-41
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Handle: RePEc:aea:aejmac:v:1:y:2009:i:1:p:219-41

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  1. Prabir De, 2009. "Global economic and financial crisis: India’s trade potential and future prospects," Working Papers 6409, Asia-Pacific Research and Training Network on Trade (ARTNeT), an initiative of UNESCAP and IDRC, Canada.. [Downloadable!]
  2. Kei-Mu Yi, 2008. "Can multi-stage production explain the home bias in trade?," Working Papers 08-12, Federal Reserve Bank of Philadelphia. [Downloadable!]
  3. Gita Gopinath & Pierre-Olivier Gourinchas & Chang-Tai Hsieh & Nicholas Li, 2009. "Estimating the Border Effect: Some New Evidence," NBER Working Papers 14938, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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This page was last updated on 2009-11-26.

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