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The Price of Distance: Producer Heterogeneity, Pricing to Market, and Geographic Barriers

  • Kano, Kazuko
  • Kano, Takashi
  • Takechi, Kazutaka

This study investigates the effect of distance on price differentials across regions. To identify the distance effect, we need to incorporate producer heterogeneity and pricing-to-market behavior. Because geographic barriers alter the threshold levels of productivity to set a positive price across markets, the effect of distance on price differentials can be underestimated if heterogeneity and pricing to market are not accounted for. By incorporating these factors, empirical analysis using micro-level data reveals that the distance effect is significantly large, suggesting that the price of geographic barriers is still high for regional transportation.

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File URL: http://hermes-ir.lib.hit-u.ac.jp/rs/bitstream/10086/25529/1/070econDP13-03.pdf
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Paper provided by Graduate School of Economics, Hitotsubashi University in its series Discussion Papers with number 2013-03.

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Length: 21, [4] p.
Date of creation: Mar 2013
Date of revision:
Handle: RePEc:hit:econdp:2013-03
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Web page: http://www.econ.hit-u.ac.jp/
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  1. Mario J. Crucini & Mototsugu Shintani & Takayuki Tsuruga, 2009. "The Law of One Price Without the Border: The Role of Distance Versus Sticky Prices," NBER Working Papers 14835, National Bureau of Economic Research, Inc.
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  3. Michael Waugh & Ina Simonovska, 2010. "The Elasticity of Trade: Estimates and Evidence," 2010 Meeting Papers 637, Society for Economic Dynamics.
  4. Pierre-Philippe Combes & Miren Lafourcade, 2005. "Transport costs: measures, determinants, and regional policy implications for France," Journal of Economic Geography, Oxford University Press, vol. 5(3), pages 319-349, June.
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  7. Engel, Charles & Rogers, John H, 1996. "How Wide Is the Border?," American Economic Review, American Economic Association, vol. 86(5), pages 1112-25, December.
  8. Bergin, Paul R & Glick, Reuven & Taylor, Alan M., 2004. "Productivity, Tradability and the Long-Run Price Puzzle," CEPR Discussion Papers 4494, C.E.P.R. Discussion Papers.
  9. James E. Anderson & Eric van Wincoop, 2004. "Trade Costs," Boston College Working Papers in Economics 593, Boston College Department of Economics.
  10. Kano, Kazuko & Kano, Takashi & Takechi, Kazutaka, 2013. "Exaggerated death of distance: Revisiting distance effects on regional price dispersions," Journal of International Economics, Elsevier, vol. 90(2), pages 403-413.
  11. Costas Arkolakis & Arnaud Costinot & Andrés Rodríguez-Clare, 2009. "New Trade Models, Same Old Gains?," NBER Working Papers 15628, National Bureau of Economic Research, Inc.
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  13. Ina Simonovska, 2010. "Income differences and prices of tradables," Globalization and Monetary Policy Institute Working Paper 55, Federal Reserve Bank of Dallas.
  14. Markusen, James R., 2013. "Putting per-capita income back into trade theory," Journal of International Economics, Elsevier, vol. 90(2), pages 255-265.
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  16. Edward J. Balistreri & Russell H. Hillberry & Thomas F. Rutherford, 2008. "Structural Estimation and Solution of International Trade Models with Heterogeneous Firms," CER-ETH Economics working paper series 08/89, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
  17. David Hummels & Alexandre Skiba, 2004. "Shipping the Good Apples Out? An Empirical Confirmation of the Alchian-Allen Conjecture," Journal of Political Economy, University of Chicago Press, vol. 112(6), pages 1384-1402, December.
  18. Andrew B Bernard & Jonathan Eaton & J. Bradford Jensen & Samuel Kortum, 2000. "Plants and productivity in international trade," Working Papers 00-08, Center for Economic Studies, U.S. Census Bureau.
  19. David Hummels, 2007. "Transportation Costs and International Trade in the Second Era of Globalization," Journal of Economic Perspectives, American Economic Association, vol. 21(3), pages 131-154, Summer.
  20. Dave Donaldson, 2010. "Railroads of the Raj: Estimating the Impact of Transportation Infrastructure," NBER Working Papers 16487, National Bureau of Economic Research, Inc.
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