Country Size and the Price of Tradeables: is There Any Relationship Beyond Wishful Thinking?
The existence of transport costs among countries makes prices of tradables diverge. When the market structure is a differentiated oligopoly the prices of tradables increase as a country get larger and/or richer. In a framework of economies of scale-differentiation-monopolistic competition a less definite result can be found, since it all depends on the level of transport costs and the degree of openess. First we go through some theoretical aspects of these different approaches. Then, we provide empirical tests that may be able to discriminate among the two competing approaches. The results show that a relationship exists between size, percapita incomes and prices of tradables in countries separated by some transport cost. As a country is larger prices are lower, yet they become higher if percapita income is higher.
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- Maurice Obstfeld & Kenneth Rogoff, 2001.
"The Six Major Puzzles in International Macroeconomics: Is There a Common Cause?,"
NBER Chapters,in: NBER Macroeconomics Annual 2000, Volume 15, pages 339-412
National Bureau of Economic Research, Inc.
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- J.Peter Neary, 2001. "Of Hype and Hyperbolas: Introducing the New Economic Geography," Journal of Economic Literature, American Economic Association, vol. 39(2), pages 536-561, June.
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