The Economic Significance of National Border Effects
To address the economic significance of national border effects, this paper provides evidence on two fundamental questions: (1) Do large border effects arise because of high perceived-price wedges between foreign and domestic products, or because imports and domestic goods are very close substitutes?; and (2) If price wedges are important, do they reflect distortionary barriers to trade or do they arise from nondistortionary factors, such as differences in transactions costs or product characteristics? I conclude that, while border effects may imply barriers, welfare costs, and a role for policy, distortions are probably not as substantial as initial border results suggested. (JEL F1)
Volume (Year): 93 (2003)
Issue (Month): 4 (September)
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