Is the Border Really That Wide?
This paper analyzes cross-border price behavior in a three-dimensional sample of US and Canadian retail prices. Unit-root tests reveal that a majority of the cross-border relative price series are stationary and that short-run cross-border price differences are eliminated at average speeds comparable to those for intranational prices. Cross-border convergence is not absolute; the long-run international price differences average two to three times their intranational counterparts. Moreover, gravity-type equations reveal a border effect that is sizable but considerably smaller than earlier estimates. These results suggest that, while significant, the Canada-US border may not be the formidable barrier portrayed in previous studies. Copyright � 2006 The Author; Journal compilation � 2006 Blackwell Publishing Ltd.
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Volume (Year): 14 (2006)
Issue (Month): 3 (08)
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