Market Intergration and Border Effects in Eastern Africa
AbstractThis paper studies border efects in Eastern Africa by exploiting a consumer price data set covering 4 out of 5 EAC member states, 39 cities and 24 goods over the period 2004-2008. The Law-of-One-Price (LOP) is tested by running level regressions on relative prices with city-pairs the unit of observation. Unsurprisingly, distance plays an important role in explaining relative price movements, both within and between countries. The border efect as measured by the coef?cient on a border dummy is signi?cant but smaller compared to what is usually found in the EngelRogers literature. Consequently, distance equivalents, at 300 to 6,000 km, are much lower (and more reasonable) than what most papers working in the Engel-Rogers tradition ?nd. Neither the signi?cance nor the size of the border efect is reduced by allowing for nominal exchange rate variation or non-tarifbarriers. The nominal exchange rate pass through is very high across the region, but lower for country-pairs that include Kenya. The advent of the Customs Union in 2005 improved market integration, as measured by a reduced border efect between 2004 and 2008, but only between Kenya and Uganda. This makes sense as Rwanda and Burundi only joined the EAC in 2007. Further, larger departures from the LOP are found during the Kenyan political crisis as regional markets were disrupted. When splicing the data across goods, staple markets are by far the most integrated with the lowest border efects and the lowest distance coef?cients. Non-Trade barriers are most important for fruits and vegetables, which could be linked to these goods being perishable. Non-food items show the largest departures from the LOP, which can be attributed to these goods (i) being less comparable, and (ii) being less present in the consumption baskets of the average Eastern African households (i.e. less deep markets).
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Centre for the Study of African Economies, University of Oxford in its series CSAE Working Paper Series with number 2012-01.
Date of creation: 2012
Date of revision:
This paper has been announced in the following NEP Reports:
- NEP-AFR-2012-05-08 (Africa)
- NEP-ALL-2012-05-08 (All new papers)
- NEP-DEV-2012-05-08 (Development)
- NEP-OPM-2012-05-08 (Open Economy Macroeconomic)
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.:
- Engel, C. & Rogers, J.H., 1995.
"How Wide is the Border?,"
4-95-16, Pennsylvania State - Department of Economics.
- Charles Engel & John H. Rogers, 1995. "How wide is the border?," Research Working Paper 95-09, Federal Reserve Bank of Kansas City.
- Charles Engel & John H. Rogers, 1995. "How wide is the border?," International Finance Discussion Papers 498, Board of Governors of the Federal Reserve System (U.S.).
- Charles Engel & John H. Rogers, 1994. "How Wide is the Border?," NBER Working Papers 4829, National Bureau of Economic Research, Inc.
- Crucini, Mario J. & Shintani, Mototsugu, 2008.
"Persistence in law of one price deviations: Evidence from micro-data,"
Journal of Monetary Economics,
Elsevier, vol. 55(3), pages 629-644, April.
- Mario J. Crucini & Mototsugu Shintani, 2006. "Persistence in Law-Of-One-Price Deviations: Evidence from Micro-Data," Vanderbilt University Department of Economics Working Papers 0616, Vanderbilt University Department of Economics.
- 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.
- Mario J. Crucini & Mototsugu Shintani, 2002. "Persistence in Law-Of-One-Price Deviations: Evidence from Micro-Data," Vanderbilt University Department of Economics Working Papers 0222, Vanderbilt University Department of Economics, revised Jul 2004.
- Mahbub Morshed, A.K.M., 2007. "Is there really a "border effect"?," Journal of International Money and Finance, Elsevier, vol. 26(7), pages 1229-1238, November.
- Anderson, Kym & Masters, William A., 2007.
"Distortions to Agricultural Incentives in Africa,"
Agricultural Distortions Working Paper
48554, World Bank.
- Yuriy Gorodnichenko & Linda Tesar, 2005.
"A Re-Examination of the Border Effect,"
546, Research Seminar in International Economics, University of Michigan.
- Guglielmo Maria Caporale & Luis A. Gil-Alana, 2010.
"Long Memory and Volatility Dynamics in the US Dollar Exchange Rate,"
Discussion Papers of DIW Berlin
975, DIW Berlin, German Institute for Economic Research.
- Guglielmo Maria Caporale & Luis A. Gil-Alana, 2011. "Long Memory and Volatility Dynamics in the US Dollar Exchange Rate," Faculty Working Papers 04/11, School of Economics and Business Administration, University of Navarra.
- David C. Parsley & Shang-Jin Wei, 2000.
"Explaining the Border Effect: The Role of Exchange Rate Variability, Shipping Costs, and Geography,"
NBER Working Papers
7836, National Bureau of Economic Research, Inc.
- Parsley, David C. & Wei, Shang-Jin, 2001. "Explaining the border effect: the role of exchange rate variability, shipping costs, and geography," Journal of International Economics, Elsevier, vol. 55(1), pages 87-105, October.
- Christian Broda & David E. Weinstein, 2008. "Understanding International Price Differences Using Barcode Data," NBER Working Papers 14017, National Bureau of Economic Research, Inc.
- Charles Engel, 1994.
"Real Exchange Rates and Relative Prices: An Empirical Investigation,"
NBER Working Papers
4231, National Bureau of Economic Research, Inc.
- Engel, Charles, 1993. "Real exchange rates and relative prices : An empirical investigation," Journal of Monetary Economics, Elsevier, vol. 32(1), pages 35-50, August.
- Kaddour Hadri, 1999.
"Testing For Stationarity In Heterogeneous Panel Data,"
1999_04, University of Liverpool Management School.
- Kaddour Hadri, 2000. "Testing for stationarity in heterogeneous panel data," Econometrics Journal, Royal Economic Society, vol. 3(2), pages 148-161.
- Rashid, Shahidur & Minot, Nicholas, 2010. "Are Staple Food Markets in Africa Efficient? Spatial Price Analyses and Beyond," Food Security Collaborative Working Papers 58562, Michigan State University, Department of Agricultural, Food, and Resource Economics.
- Kenneth Rogoff, 1996. "The Purchasing Power Parity Puzzle," Journal of Economic Literature, American Economic Association, vol. 34(2), pages 647-668, June.
- Mahbub Morshed, A. K. M., 2003. "What can we learn from a large border effect in developing countries?," Journal of Development Economics, Elsevier, vol. 72(1), pages 353-369, October.
- Charles Engel & John H. Rogers & Shing-Yi B. Wang, 2003. "Revisiting the Border: an assessment of the law of one price using very disaggregated consumer price data," International Finance Discussion Papers 777, Board of Governors of the Federal Reserve System (U.S.).
- Charles Engel & John H. Rogers, 2000.
"Deviations from purchasing power parity: causes and welfare costs,"
International Finance Discussion Papers
666, Board of Governors of the Federal Reserve System (U.S.).
- Engel, Charles & Rogers, John H., 2001. "Deviations from purchasing power parity: causes and welfare costs," Journal of International Economics, Elsevier, vol. 55(1), pages 29-57, October.
- Charles Engel & John H. Rogers, 1999. "Deviations from Purchasing Power Parity:Causes and Welfare Costs," Discussion Papers in Economics at the University of Washington 0038, Department of Economics at the University of Washington.
- Charles Engel & John H. Rogers, 1999. "Deviations from Purchasing Power Parity:Causes and Welfare Costs," Working Papers 0038, University of Washington, Department of Economics.
- Michael B. Devereux & Charles Engel, 1998. "Fixed vs. Floating Exchange Rates: How Price Setting Affects the Optimal Choice of Exchange-Rate Regime," NBER Working Papers 6867, National Bureau of Economic Research, Inc.
- Stephen G. Cecchetti & Nelson C. Mark & Robert J. Sonora, 2002. "Price Index Convergence Among United States Cities," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 43(4), pages 1081-1099, November.
- Yuriy Gorodnichenko & Linda L. Tesar, 2009. "Border Effect or Country Effect? Seattle May Not Be So Far from Vancouver After All," American Economic Journal: Macroeconomics, American Economic Association, vol. 1(1), pages 219-41, January.
- Govereh, Jones & Haggblade, Steven & Nielson, Hunter & Tschirley, David L., 2008. "Maize Market Sheds in Eastern and Southern Africa. Report 1," Food Security Collaborative Working Papers 55374, Michigan State University, Department of Agricultural, Food, and Resource Economics.
- Grafe, Clemens & Raiser, Martin & Sakatsume, Toshiaki, 2008. "Beyond borders--Reconsidering regional trade in Central Asia," Journal of Comparative Economics, Elsevier, vol. 36(3), pages 453-466, September.
- Luis Gil-Alana, 2003. "Stochastic behavior of nominal exchange rates," Atlantic Economic Journal, International Atlantic Economic Society, vol. 31(2), pages 159-173, June.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Richard Payne).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.