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

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

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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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File URL: http://hdl.handle.net/10.1002/ijfe.237
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Publisher Info
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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  1. Parsley, David C & Wei, Shang-Jin, 1996. "Convergence to the Law of One Price without Trade Barriers or Currency Fluctuations," The Quarterly Journal of Economics, MIT Press, vol. 111(4), pages 1211-36, November. [Downloadable!] (restricted)
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  2. Engel, Charles & Rogers, John H, 1996. "How Wide Is the Border?," American Economic Review, American Economic Association, vol. 86(5), pages 1112-25, December. [Downloadable!] (restricted)
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  3. Mario J. Crucini & Mototsugu Shintani, 2006. "Persistence in Law-of-One-Price Deviations: Evidence from Micro-data," Levine's Bibliography 321307000000000311, UCLA Department of Economics. [Downloadable!]
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  4. Kenneth Rogoff, 1996. "The Purchasing Power Parity Puzzle," Journal of Economic Literature, American Economic Association, vol. 34(2), pages 647-668, June. [Downloadable!] (restricted)
  5. Paula De Masi & Vincent Koen, 1995. "Relative Price Convergence in Russia," IMF Working Papers 95/54, International Monetary Fund.
  6. Berkowitz, Daniel & DeJong, David N., 1999. "Russia's internal border," Regional Science and Urban Economics, Elsevier, vol. 29(5), pages 633-649, September. [Downloadable!] (restricted)
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  7. Obstfeld, Maurice & Taylor, Alan M., 1997. "Nonlinear Aspects of Goods-Market Arbitrage and Adjustment: Heckscher's Commodity Points Revisited," Journal of the Japanese and International Economies, Elsevier, vol. 11(4), pages 441-479, December. [Downloadable!] (restricted)
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  8. Daniel Berkowitz & David N. DeJong, 2001. "The evolution of market integration in Russia," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 9(1), pages 87-104, March. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. 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. [Downloadable!]
  2. Konstantin Gluschenko, 2005. "Inter-Regional Price Convergence and Market Integration in Russia," Urban/Regional 0504002, EconWPA. [Downloadable!]
    Other versions:
  3. Gluschenko, Konstantin, 2005. "Crime and Prices," Economics Series 167, Institute for Advanced Studies. [Downloadable!]
  4. Gluschenko, Konstantin, 2006. "Russia’s common market takes shape: Price convergence and market integration among Russian regions," BOFIT Discussion Papers 7/2006, Bank of Finland, Institute for Economies in Transition. [Downloadable!]
  5. 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 Stephen M. Ross Business School. [Downloadable!]
  6. Konstantin Gluschenko, 2004. "The Law of one Price in the Russian Economy," LICOS Discussion Papers 15204, LICOS - Centre for Institutions and Economic Performance, K.U.Leuven. [Downloadable!]
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