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Explaining Product Price Differences Across Countries

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  • Robert E. Lipsey
  • Birgitta Swedenborg

Abstract

A substantial part of international differences in prices of individual products, both goods and services, can be explained by differences in per capita income, wage compression, or low wage dispersion among low-wage workers, and short-term exchange rate fluctuations. Higher per capita income is associated with higher prices and higher wage dispersion with lower prices. The effects of higher income and wage dispersion are moderated for the more tradable products. The effects of wage dispersion, on the other hand, are magnified for the more labor-intensive products, particularly low-skill services. The differences in prices across countries are reflected in differences in the composition of consumption. Countries in which prices of labor-intensive services are very high, such as the Nordic countries, consume much less of them. For some services, the shares of GDP consumed in high-price countries are less than 20 percent of the shares in low-price countries. Since these are services of very low tradability, the low consumption levels of these services imply low employment in them.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 13239.

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Date of creation: Jul 2007
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Handle: RePEc:nbr:nberwo:13239

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  1. Richard B. Freeman & Ronald Schettkat, 2000. "Skill Compression, Wage Differentials and Employment: Germany vs. the US," NBER Working Papers 7610, National Bureau of Economic Research, Inc.
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  7. Olivier Blanchard & Francesco Giavazzi, 2001. "Macroeconomic Effects of Regulation and Deregulation in Goods and Labor Markets," NBER Working Papers 8120, National Bureau of Economic Research, Inc.
  8. Bhagwati, Jagdish N, 1984. "Why Are Services Cheaper in the Poor Countries?," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 94(374), pages 279-86, June.
  9. Winfried Koeniger & Marco Leonardi & Luca Nunziata, 2007. "Labor Market Institutions and Wage Inequality," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 60(3), pages 340-356, April.
  10. Lipsey, Robert E & Swedenborg, Birgitta, 1996. "The High Cost of Eating: Causes of International Differences in Consumer Food Prices," Review of Income and Wealth, International Association for Research in Income and Wealth, International Association for Research in Income and Wealth, vol. 42(2), pages 181-94, June.
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Cited by:
  1. Bekkers, Eddy & Francois, Joseph & Manchin, Miriam, 2012. "Import Prices, Income, and Inequality," CEPR Discussion Papers, C.E.P.R. Discussion Papers 8911, C.E.P.R. Discussion Papers.

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