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Price convergence in the enlarged internal market

Author

Listed:
  • Christian Dreger
  • Konstantin Kholodilin
  • Kirsten Lommatzsch
  • Jirka Slacalek
  • Przemyslaw Wozniak

Abstract

The studies' main aim is to investigate the effects of the EU-10 enlargement on price convergence within the Internal Market. It distinguishes between the opposite forces provided by: (1) the catching up effect of the EU-10, expected to lead to a rise in price levels; and (2) increased competitiveness pressure on prices expected to lower price levels due to lower mark ups of prices over marginal costs. The study is based on comparative price levels for the EU-25, covering the period 1999-2004. Distinct variables were identified as proxies for the catching-up and competition forces. The following analysis proceeded in two steps. First, it is examined whether price convergence has occurred and, second, what are its main drivers. The results confirm the presence of price convergence. This process is particularly visible in the case of basic headings, most likely because they are related to more homogeneous products. Moreover, both catching up and competition have been important factors for explaining price convergence. In addition, both effects seem to be more pronounced for the EU-10 than for the EU-15.

Suggested Citation

  • Christian Dreger & Konstantin Kholodilin & Kirsten Lommatzsch & Jirka Slacalek & Przemyslaw Wozniak, 2007. "Price convergence in the enlarged internal market," European Economy - Economic Papers 2008 - 2015 292, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    • Handle: RePEc:euf:ecopap:0292
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    Cited by:

    1. Richard Pospisil & Jarmila Koudelkova, 2016. "Price Convergence to the EU: Some Evidence for the Czech Republic," Global Economic Observer, "Nicolae Titulescu" University of Bucharest, Faculty of Economic Sciences;Institute for World Economy of the Romanian Academy, vol. 4(2), pages 32-38, November.
    2. Joanna Wolszczak-Derlacz & Rembert De Blander, 2009. "Price convergence in the European Union and in the New Member States," Bank i Kredyt, Narodowy Bank Polski, vol. 40(2), pages 37-59.
    3. Václav Žďárek, 2011. "Empirická analýza průběhu cenové konvergence ČR a nových členských zemí EU k eurozóně [An Empirical Analysis of Price Convergence of the Czech Republic and the New EU Member States towards the Euro," Politická ekonomie, Prague University of Economics and Business, vol. 2011(4), pages 454-474.
    4. Christian Dreger & Eric Girardin, 2007. "Does the Nominal Exchange Rate Regime Affect the Long Run Properties of Real Exchange Rates?," Discussion Papers of DIW Berlin 746, DIW Berlin, German Institute for Economic Research.
    5. Cassetta, Ernesto & Nava, Consuelo R. & Zoia, Maria Grazia, 2022. "A three-step procedure to investigate the convergence of electricity and natural gas prices in the European Union," Energy Economics, Elsevier, vol. 105(C).
    6. Marina Glushenkova & Marios Zachariadis, 2014. "Law-of-One-Price Deviations Before and After the Euro: The case of Cyprus," Cyprus Economic Policy Review, University of Cyprus, Economics Research Centre, vol. 8(2), pages 61-85, December.
    7. Marina Glushenkova & Marios Zachariadis, 2014. "Understanding Law-of-One-Price Deviations across Europe Before and After the Euro," University of Cyprus Working Papers in Economics 01-2014, University of Cyprus Department of Economics.
    8. Leon Podkaminer, 2013. "Persistent gaps between purchasing power parities and exchange rates under the law of one price: a puzzle (partly) explained?," Bank i Kredyt, Narodowy Bank Polski, vol. 44(4), pages 333-352.
    9. Jan-Egbert Sturm & Ulrich Fritsche & Michael Graff & Michael Lamla & Sarah Lein & Volker Nitsch & David Liechti & Daniel Triet, 2009. "The euro and prices: changeover-related inflation and price convergence in the euro area," European Economy - Economic Papers 2008 - 2015 381, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    10. Fousekis, Panos & Grigoriadis, Vasilis, . "Integration and Hierarchy of Pork Markets in the EU: An Analysis from the Vantage of Graph Theory," German Journal of Agricultural Economics, Humboldt-Universitaet zu Berlin, Department for Agricultural Economics, vol. 68(2).
    11. Vojtěch Spěváček & Růžena Vintrová & Eva Zamrazilová & Mojmír Hájek & Václav Žďárek, 2008. "Česká ekonomika po vstupu do Evropské unie [The czech economy after its entry into European Union]," Politická ekonomie, Prague University of Economics and Business, vol. 2008(3), pages 291-317.
    12. Cassetta, Ernesto & Nava, Consuelo R. & Zoia, Maria Grazia, 2022. "EU electricity market integration and cross-country convergence in residential and industrial end-user prices," Energy Policy, Elsevier, vol. 165(C).
    13. Hałka, Aleksandra & Leszczyńska-Paczesna, Agnieszka, 2019. "Price convergence in the European Union – What has changed?," Economic Modelling, Elsevier, vol. 79(C), pages 226-241.
    14. Martijn Brons & Fotios Kalantzis & Lucia Vergano, 2019. "Market Functioning & Market Integration in EU Network Industries – Telecommunications, Energy & Transport," European Economy - Discussion Papers 111, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    15. repec:hum:wpaper:sfb649dp2011-019 is not listed on IDEAS

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    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • F15 - International Economics - - Trade - - - Economic Integration
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models

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