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Explaining Service-Price Differences in International Comparisons

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  • Falvey, Rodney E
  • Gemmell, Norman

Abstract

This paper reexamines observed international differences in the price of services and the positive correlation of these with per capita GDP differences. Using a general trade model with a nontraced sector, the authors find that differences in countries' factor endowments, populations, trade policies, and trade balances will have ambiguous and sometimes opposite effects on their service prices and real incomes. Estimating the service-price equation using recent data suggests that larger endowments of agricultural land, minerals, and capital, larger trade deficits, and higher prices for tradables increase service prices. Conversely, larger populations and labor forces reduce service prices. Copyright 1991 by American Economic Association.

Suggested Citation

  • Falvey, Rodney E & Gemmell, Norman, 1991. "Explaining Service-Price Differences in International Comparisons," American Economic Review, American Economic Association, vol. 81(5), pages 1295-1309, December.
  • Handle: RePEc:aea:aecrev:v:81:y:1991:i:5:p:1295-309
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    Cited by:

    1. C L Melliss, 1993. "Tradable and non-tradable prices in the UK and EC: measurement and explanation," Bank of England working papers 15, Bank of England.
    2. Falvey, Rodney E. & Gemmell, Norman, 1995. "Explaining international differences in the share of services in real expenditure," Economics Letters, Elsevier, vol. 47(1), pages 53-58, January.
    3. HALICIOGLU, Ferda & Ketenci, Natalya, 2017. "Testing the Productivity Bias Hypothesis in Middle East Countries," MPRA Paper 83528, University Library of Munich, Germany.
    4. Pilar González Murias, 1998. "La paridad de poder adquisitivo: concepto y evolución histórica," Estudios de Economía Aplicada, Estudios de Economía Aplicada, vol. 9, pages 79-102, Junio.
    5. Christopher Clague, 1993. "Why are Prices so Low in America?," The World Economy, Wiley Blackwell, vol. 16(5), pages 601-610, September.
    6. Sebastian Edwards & Miguel A. Savastano, 1999. "Exchange Rates in Emerging Economies: What Do We Know? What Do We Need to Know?," NBER Working Papers 7228, National Bureau of Economic Research, Inc.
    7. Falvey, Rod & Gemmell, Norman, 1999. "Factor endowments, nontradables prices and measures of 'openness'," Journal of Development Economics, Elsevier, vol. 58(1), pages 101-122, February.
    8. Balvers, Ronald J. & H. Bergstrand, Jeffrey, 1997. "Equilibrium real exchange rates: closed-form theoretical solutions and some empirical evidence," Journal of International Money and Finance, Elsevier, vol. 16(3), pages 345-366, June.
    9. Ephraim Kleiman, 1997. "National Price Levels: Do Taxes Matter?," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 4(3), pages 361-377, July.
    10. Warwick J McKibbin & Will Martin, 1998. "The East Asian Crisis: Investigating Causes and Policy Responses," Departmental Working Papers 1998-06, The Australian National University, Arndt-Corden Department of Economics.
    11. Satyanarayan Kothe, 2014. "Price and Income Elasticity of Demand for Services in India: A Macro Analysis," EcoMod2014 7355, EcoMod.
    12. Lin, Guijun & Schramm, Ronald M., 2003. "China's foreign exchange policies since 1979: A review of developments and an assessment," China Economic Review, Elsevier, vol. 14(3), pages 246-280.
    13. Falvey, Rodney E & Gemmell, Norman & Chang, Cherry & Zheng, Guanyu, 2014. "Explaining International Differences in the Prices of Tradables and Non-Tradables (with a New Zealand Perspective)," Working Paper Series 3425, Victoria University of Wellington, Chair in Public Finance.
    14. Martin, Will J. & Warr, Peter G., 1994. "Determinants of agriculture's relative decline: Thailand," Agricultural Economics, Blackwell, vol. 11(2-3), pages 219-235, December.
    15. Robert E. Lipsey & Birgitta Swedenborg, 1999. "Wage Dispersion and Country Price Levels," NBER Chapters,in: International and Interarea Comparisons of Income, Output, and Prices, pages 453-477 National Bureau of Economic Research, Inc.

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