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China and international market integration: Evidence from the law of one price in the Middle East and Africa

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  • Dang, Vinh Q.T.
  • So, Erin P.K.
  • Yang, Alan Yu
  • Chan, Kenneth S.

Abstract

We model market integration in the Middle East and Africa by analyzing price dispersion and testing the law of one price (LOP) on highly-comparable actual local retail prices of 135 goods and services across 23 countries in the region over the period of 1990–2016. Second-generation panel estimators are applied to four price benchmarks: Regional average, South Africa, China, and US prices. Cross-regional price dispersion diminishes considerably over time up to 2008, particularly for non-tradeables around China price. The test of LOP indicates the percentage of convergent prices is highest in China price benchmark, followed by US, South Africa, and regional average benchmarks. Direct estimation of the convergence speed confirms this order. Overall, the results show evidence of increasing market integration in Middle East and Africa but it appears to be driven by global forces and, especially, the rise of China as a new economic power. The results show that some emerging market economies, such as China, can step up and promote integration while traditional economic powerhouses, such as the USA and UK, disengage from international economic relations.

Suggested Citation

  • Dang, Vinh Q.T. & So, Erin P.K. & Yang, Alan Yu & Chan, Kenneth S., 2020. "China and international market integration: Evidence from the law of one price in the Middle East and Africa," The North American Journal of Economics and Finance, Elsevier, vol. 54(C).
    • Handle: RePEc:eee:ecofin:v:54:y:2020:i:c:s106294081930292x
    DOI: 10.1016/j.najef.2019.101127
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    Cited by:

    1. Burdekin, Richard C.K. & Reckers, Dawson & Tao, Ran, 2022. "Quantifying China’s financial reach up through the pandemic: The African experience," The North American Journal of Economics and Finance, Elsevier, vol. 63(C).

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    More about this item

    Keywords

    Middle East and Africa; Economic integration; Law of one price; Convergence; Price dispersion; China;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration

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