Price Equalization Does Not Imply Free Trade
In this paper we show that price equalization alone is not sufficient to determine the barriers to international trade. There are many barrier combinations that deliver price equalization, but each combination implies a different volume of trade. We demonstrate this first theoretically in a simple two-country model. We then demonstrate the result quantitatively for the case of capital goods trade: barriers have to be large in order to be consistent with the observed trade flows even though our model implies that capital goods prices are similar across countries. Zero barriers to trade in capital goods will deliver price equalization in capital goods, but cannot reproduce the observed trade flows.
|Date of creation:||2013|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: +49 (89) 9224-0
Fax: +49 (89) 985369
Web page: http://www.cesifo.de
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Piyusha Mutreja & B. Ravikumar & Raymond Riezman & Michael Sposi, 2012.
"Price equalization does not imply free trade,"
Globalization and Monetary Policy Institute Working Paper
129, Federal Reserve Bank of Dallas.
- Piyusha Mutreja & B. Ravikumar & Raymond Riezman & Michael J. Sposi, 2012. "Price equalization does not imply free trade," Working Papers 2012-010, Federal Reserve Bank of St. Louis.
- Piyusha Mutreja & B. Ravikumar & Raymond Riezman & Michael J. Sposi, 2013. "Price Equalization Does Not Imply Free Trade," CESifo Working Paper Series 4099, CESifo Group Munich.
- Michael E. Waugh, 2010.
"International Trade and Income Differences,"
American Economic Review,
American Economic Association, vol. 100(5), pages 2093-2124, December.
- Robert E. Hall & Charles I. Jones, 1999.
"Why Do Some Countries Produce So Much More Output Per Worker Than Others?,"
The Quarterly Journal of Economics,
MIT Press, vol. 114(1), pages 83-116, February.
- Robert E. Hall & Charles I. Jones, 1999. "Why Do Some Countries Produce So Much More Output per Worker than Others?," NBER Working Papers 6564, National Bureau of Economic Research, Inc.
- Douglas Gollin, 2002.
"Getting Income Shares Right,"
Journal of Political Economy,
University of Chicago Press, vol. 110(2), pages 458-474, April.
- Chang-Tai Hsieh & Peter J. Klenow, 2007.
"Relative Prices and Relative Prosperity,"
American Economic Review,
American Economic Association, vol. 97(3), pages 562-585, June.
- R. Dornbusch & S. Fischer & P. A. Samuelson, 1976.
"Comparative Advantage, Trade and Payments in a Ricardian Model With a Continuum of Goods,"
178, Massachusetts Institute of Technology (MIT), Department of Economics.
- Dornbusch, Rudiger & Fischer, Stanley & Samuelson, Paul A, 1977. "Comparative Advantage, Trade, and Payments in a Ricardian Model with a Continuum of Goods," American Economic Review, American Economic Association, vol. 67(5), pages 823-39, December.
When requesting a correction, please mention this item's handle: RePEc:ces:ceswps:_4099. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Julio Saavedra)
If references are entirely missing, you can add them using this form.