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Assessing a feasible degree of product market integration: a pilot analysis

Author

Listed:
  • Konstantin Gluschenko
  • Darya Karchevskaya

Abstract

Purpose - This paper aims to make a preliminary estimate of the degree of integration in the US product market (widely acknowledged to be the most integrated among geographically large economies) as an upper bound of spatial integration that is practically achievable in markets covering fairly large territories. Design/methodology/approach - The approach takes the form of an econometric model derived from the fact that local price of a tradable good should not be dependent on local demand under the law of “one price is a tool to measure market integration”. It is applied to data on the cost of a grocery basket and prices for three individual goods in 2000 across 29 US cities. Findings - The regression results suggest that the US market is not perfectly integrated. Thus, the estimated degree of its integration can be deemed, indeed, as a feasible maximum. Applying this benchmark to the European part of Russia in 2000, its degree of market integration turns out to be comparable – by the order of magnitude – with the feasible one. The roles of a few factors that could potentially cause segmentation of the US market are estimated. Research limitations/implications - The estimated degree of US market integration is crude because of the relatively small spatial sample. Further research has to substantially widen the spatial sample and estimate integration of the US market across a number of points in time. Originality/value - The paper suggests a realistic benchmark standard for judging the extent of market integration in various (geographically large) economies.

Suggested Citation

  • Konstantin Gluschenko & Darya Karchevskaya, 2010. "Assessing a feasible degree of product market integration: a pilot analysis," Journal of Economic Studies, Emerald Group Publishing, vol. 37(4), pages 419-437, September.
  • Handle: RePEc:eme:jespps:v:37:y:2010:i:4:p:419-437
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    References listed on IDEAS

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    1. Konstantin Gluschenko, 2004. "Analysing changes in market integration through a cross-sectional test for the law of one price," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 9(2), pages 135-149.
    2. Engel, Charles & Rogers, John H, 1996. "How Wide Is the Border?," American Economic Review, American Economic Association, pages 1112-1125.
    3. Charles Engel & John H. Rogers, 1999. "Violating the law of one price: should we make a federal case out of it?," International Finance Discussion Papers 644, Board of Governors of the Federal Reserve System (U.S.).
    4. Stephen G. Cecchetti & Nelson C. Mark & Robert J. Sonora, 2002. "Price Index Convergence Among United States Cities," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 43(4), pages 1081-1099, November.
    5. Berkowitz, Daniel & DeJong, David N., 2003. "Regional integration: an empirical assessment of Russia," Journal of Urban Economics, Elsevier, vol. 53(3), pages 541-559, May.
    6. Parsley, David C. & Wei, Shang-Jin, 2001. "Explaining the border effect: the role of exchange rate variability, shipping costs, and geography," Journal of International Economics, Elsevier, pages 87-105.
    7. David C. Parsley & Shang-Jin Wei, 1996. "Convergence to the Law of One Price Without Trade Barriers or Currency Fluctuations," The Quarterly Journal of Economics, Oxford University Press, vol. 111(4), pages 1211-1236.
    8. David Parsley Shang-Jin Wei, 2002. "Currency Arrangements And Goods Market Integration: A Price Based Approach," International Finance 0211004, EconWPA.
    9. Engel, Charles & Rogers, John H, 2001. "Violating the Law of One Price: Should We Make a Federal Case Out of It?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 33(1), pages 1-15, February.
    10. Konstantin Gluschenko, 2003. "Market integration in Russia during the transformation years," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 11(3), pages 411-434, September.
    11. Daniel Berkowitz & David N. DeJong, 2001. "The evolution of market integration in Russia," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 9(1), pages 87-104, March.
    12. Parsley, David C. & Wei, Shang-Jin, 2001. "Explaining the border effect: the role of exchange rate variability, shipping costs, and geography," Journal of International Economics, Elsevier, pages 87-105.
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    More about this item

    Keywords

    International marketing; Pricing; United States; Russia;

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F15 - International Economics - - Trade - - - Economic Integration
    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce

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