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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. Andrew Atkeson & Ariel Burstein, 2007. "Pricing-to-market, trade costs, and international relative prices," Working Paper Series 2007-26, Federal Reserve Bank of San Francisco.
  2. Kazuko Kano & Takashi Kano & Kazutaka Takechi, 2010. "Exaggerated Death of Distance: Revisiting Distance Effects on Regional Price Dispersions," CIRJE F-Series CIRJE-F-760, CIRJE, Faculty of Economics, University of Tokyo.
  3. David Hummels & Alexandre Skiba, 2002. "Shipping the Good Apples Out? An Empirical Confirmation of the Alchian-Allen Conjecture," NBER Working Papers 9023, National Bureau of Economic Research, Inc.
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  5. MarioJ. Crucini & Mototsugu Shintani & Takayuki Tsuruga, 2010. "The Law of One Price without the Border: The Role of Distance versus Sticky Prices," Economic Journal, Royal Economic Society, vol. 120(544), pages 462-480, 05.
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  8. Matthieu Crozet & Pamina Koenig, 2010. "Structural gravity equations with intensive and extensive margins," Canadian Journal of Economics, Canadian Economics Association, vol. 43(1), pages 41-62, February.
  9. Balistreri, Edward J. & Hillberry, Russell H. & Rutherford, Thomas F., 2011. "Structural estimation and solution of international trade models with heterogeneous firms," Journal of International Economics, Elsevier, vol. 83(2), pages 95-108, March.
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  11. 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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  13. Ottaviano, Gianmarco & Melitz, Marc, 2008. "Market Size, Trade, and Productivity," Scholarly Articles 3229096, Harvard University Department of Economics.
  14. James E. Anderson & Eric van Wincoop, 2000. "Gravity with Gravitas: A Solution to the Border Puzzle," Boston College Working Papers in Economics 485, Boston College Department of Economics.
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  16. Arnaud Costinot & Andres Rodriguez-Clare & Costas Arkolakis, 2010. "New Trade Models, Same Old Gains?," 2010 Meeting Papers 433, Society for Economic Dynamics.
  17. Ina Simonovska, 2010. "Income differences and prices of tradables," Globalization and Monetary Policy Institute Working Paper 55, Federal Reserve Bank of Dallas.
  18. James E. Anderson & Eric van Wincoop, 2004. "Trade Costs," Boston College Working Papers in Economics 593, Boston College Department of Economics.
  19. Jonathan Eaton & Samuel Kortum, 2002. "Technology, Geography, and Trade," Econometrica, Econometric Society, vol. 70(5), pages 1741-1779, September.
  20. Dave Donaldson, 2010. "Railroads of the Raj: Estimating the Impact of Transportation Infrastructure," NBER Working Papers 16487, National Bureau of Economic Research, Inc.
  21. 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.
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