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Purchasing power parity and free trade area

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  • Lee, Chin
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Abstract

The aim of this paper is to apply recently developed panel cointegration techniques proposed by Pedroni (1999, 2004) to evaluate the effectiveness of various regional trade agreements by examine the goods market integration between trading partners using purchasing power parity (PPP). The results obtained from panel cointegration tests strongly support the validity of long-run PPP in almost all cases. Evidence of price convergence suggested that the panel countries of free trade areas (FTAs) are integrated, hence FTAs has fostererd the price convergence.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 40431.

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Date of creation: 2010
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Publication status: Published in The Empirical Economics Letters 10.9(2010): pp. 1003-1008
Handle: RePEc:pra:mprapa:40431

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Keywords: purchasing power parity; economic integration; free trade area; panel cointegration test;

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  1. Koedijk, Kees & Tims, Ben & Van Dijk, Mathijs A, 2004. "Purchasing Power Parity and the Euro Area," CEPR Discussion Papers, C.E.P.R. Discussion Papers 4510, C.E.P.R. Discussion Papers.
  2. Cheung, Yin-Wong & Chinn, Menzie & Fujii, Eiji, 2003. "China, Hong Kong, and Taiwan: A Quantitative Assessment of Real and Financial Integration," Santa Cruz Center for International Economics, Working Paper Series, Center for International Economics, UC Santa Cruz qt01g0h0q2, Center for International Economics, UC Santa Cruz.
  3. Yin-Wong Cheung & Menzie D. Chinn & Eiji Fujii, 2003. "The Chinese Economies in Global Context: The Integration Process and Its Determinants," NBER Working Papers 10047, National Bureau of Economic Research, Inc.
  4. Peter Pedroni, 2004. "Panel Cointegration: Asymptotic and Finite Sample Properties of Pooled Time Series Tests with an Application to the PPP Hypothesis," Department of Economics Working Papers, Department of Economics, Williams College 2004-15, Department of Economics, Williams College.
  5. Dr James Laurenceson, 2003. "Economic Integration Between China And ASEAN," Discussion Papers Series 329, School of Economics, University of Queensland, Australia.
  6. Laureti, Lucio, 2001. "Purchasing power parity and integration: Empirical evidence in the Mediterranean countries," Journal of Policy Modeling, Elsevier, Elsevier, vol. 23(7), pages 731-751, October.
  7. Aggarwal, Raj & Simmons, Walter, 2006. "Eonomic integration among caribbean countries: Evidence from purchasing power parity, 1980-2000," Journal of Policy Modeling, Elsevier, Elsevier, vol. 28(3), pages 277-280, April.
  8. R. Moodley & William Kerr & Daniel Gordon, 2000. "Has the Canada-US trade agreement fostered price integration?," Review of World Economics (Weltwirtschaftliches Archiv), Springer, Springer, vol. 136(2), pages 334-354, June.
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