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Analysing changes in market integration through a cross-sectional test for the law of one price

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  • Konstantin Gluschenko

    (Institute of Economics and Industrial Engineering, Siberian Branch of the Russian Academy of Sciences, Russia)

Abstract

This paper presents a theoretical argument that the relationship between price differences and per capita income differences across locations can be used as a cross-sectional test for the law of one price. Since the relationship should be statistically insignificant or very weak in an integrated economy, its strength can measure the extent of goods market integration. A sequence of cross-sectional estimations for a number of points in time provides the temporal pattern of integration, so enabling changes in integration to be traced. The basic equation may be augmented by additional variables representing potential culprits behind market segmentation so as to estimate their impeding impact to integration. This methodology is empirically verified by applying it to the Russian domestic market. It is found that integration of Russia's goods market tends to improve with time; a number of culprits behind market segmentation are identified. Copyright © 2004 John Wiley & Sons, Ltd.

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Article provided by John Wiley & Sons, Ltd. in its journal International Journal of Finance & Economics.

Volume (Year): 9 (2004)
Issue (Month): 2 ()
Pages: 135-149

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Handle: RePEc:ijf:ijfiec:v:9:y:2004:i:2:p:135-149

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Citations

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Cited by:
  1. Gluschenko, Konstantin, 2010. "The Law of One Price in the Russian Economic Space," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 17(1), pages 3-19.
  2. Gluschenko, Konstantin, 2005. "Crime and Prices," Economics Series 167, Institute for Advanced Studies.
  3. Gluschenko, Konstantin, 2002. "Market Integration in Russia During the Transformation Years," Economics Series 116, Institute for Advanced Studies.
  4. Konstantin Gluschenko, 2009. "Goods market integration in Russia during the economic upturn," Post-Communist Economies, Taylor & Francis Journals, vol. 21(2), pages 125-142.
  5. Konstantin Gluschenko, 2005. "Inter-Regional Price Convergence and Market Integration in Russia," International Advances in Economic Research, Springer, vol. 11(4), pages 483-483, November.
  6. Konstantin Gluschenko, 2010. "Price convergence and market integration in Russia," William Davidson Institute Working Papers Series wp999, William Davidson Institute at the University of Michigan.
  7. Akhmedjonov, Alisher & Lau, Chi Keung, 2012. "Do energy prices converge across Russian regions?," Economic Modelling, Elsevier, vol. 29(5), pages 1623-1631.
  8. Tsuruta, Yoshitaka, 2008. "What affects intranational price dispersion?: The case of Japanese gasoline prices," Japan and the World Economy, Elsevier, vol. 20(4), pages 563-584, December.
  9. Konstantin Gluschenko, 2004. "The Evolution of Cross-Region Price Distribution in Russia," William Davidson Institute Working Papers Series 2004-716, William Davidson Institute at the University of Michigan.
  10. Gluschenko, Konstantin & Kulighina, Darya, 2006. "Assessing a feasible degree of product market integration. (A pilot analysis)," BOFIT Discussion Papers 3/2006, Bank of Finland, Institute for Economies in Transition.

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