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International Price Dispersion and the Direction of Trade

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Author Info

  • Ozlem Inanc
  • Marios Zachariadis

Abstract

The importance of trade costs in segmenting product markets cannot be captured by considering aggregate prices or in the absence of information on the direction of trade. We address this problem by utilizing product-specific prices along with cross-sectional productivity measures and bilateral trade flows that allow us to identify the probable source of any one product. Our empirical approach is in line with the theoretical framework of Eaton and Kortum (2002) and the variation of this proposed in Anderson and van Wincoop (2004). The data are shown to be consistent with this framework. In particular, trade costs in the form of transportation and distribution costs are important in determining international price differences and segmenting international markets.

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File URL: http://papers.econ.ucy.ac.cy/RePEc/papers/2-2006.pdf
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Bibliographic Info

Paper provided by University of Cyprus Department of Economics in its series University of Cyprus Working Papers in Economics with number 2-2006.

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Length: 45 pages
Date of creation: Mar 2006
Date of revision:
Handle: RePEc:ucy:cypeua:2-2006

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Web page: http://www.econ.ucy.ac.cy

Related research

Keywords: segmented markets; trade costs; transport costs; distribution costs; market size; international price dispersion.;

References

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  1. Jonathan Eaton & Samuel Kortum, 2001. "Technology, Trade, and Growth: A Unified Fremework," Boston University - Department of Economics - The Institute for Economic Development Working Papers Series dp-110, Boston University - Department of Economics.
  2. James E. Anderson & Eric van Wincoop, 2004. "Trade Costs," Boston College Working Papers in Economics 593, Boston College Department of Economics.
  3. Andrew B. Bernard & Jonathan Eaton & J. Bradford Jensen & Samuel Kortum, 2000. "Plants and Productivity in International Trade," Boston University - Institute for Economic Development 105, Boston University, Institute for Economic Development.
  4. R. Dornbusch & S. Fischer & P. A. Samuelson, 1976. "Comparative Advantage, Trade and Payments in a Ricardian Model With a Continuum of Goods," Working papers 178, Massachusetts Institute of Technology (MIT), Department of Economics.
  5. Mario J. Crucini & Chris I. Telmer & Marios Zachariadis, 2005. "Understanding European Real Exchange Rates," American Economic Review, American Economic Association, vol. 95(3), pages 724-738, June.
  6. James Harrigan, 1998. "Estimation of cross-country differences in industry production functions," Staff Reports 36, Federal Reserve Bank of New York.
  7. Paul Bergin & Reuven Glick & Alan M. Taylor, 2004. "Productivity, Tradability, and the Long-Run Price Puzzle," NBER Working Papers 10569, National Bureau of Economic Research, Inc.
  8. Benigno, Gianluca & Christoph Thoenissen, 2002. "Equilibrium Exchange Rates and Supply Side Performance," Royal Economic Society Annual Conference 2002 19, Royal Economic Society.
  9. repec:rus:hseeco:123846 is not listed on IDEAS
  10. Bergstrand, Jeffrey H, 1991. "Structural Determinants of Real Exchange Rates and National Price Levels: Some Empirical Evidence," American Economic Review, American Economic Association, vol. 81(1), pages 325-34, March.
  11. Martin Berka, 2009. "Nonlinear Adjustment in Law of One Price Deviations and Physical Characteristics of Goods," Review of International Economics, Wiley Blackwell, vol. 17(1), pages 51-73, 02.
  12. repec:fth:bosecd:110 is not listed on IDEAS
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