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Explaining Product Price Differences Across Countries


  • Robert E. Lipsey
  • Birgitta Swedenborg


A substantial part of international differences in prices of individual products, both goods and services, can be explained by differences in per capita income, wage compression, or low wage dispersion among low-wage workers, and short-term exchange rate fluctuations. Higher per capita income is associated with higher prices and higher wage dispersion with lower prices. The effects of higher income and wage dispersion are moderated for the more tradable products. The effects of wage dispersion, on the other hand, are magnified for the more labor-intensive products, particularly low-skill services. The differences in prices across countries are reflected in differences in the composition of consumption. Countries in which prices of labor-intensive services are very high, such as the Nordic countries, consume much less of them. For some services, the shares of GDP consumed in high-price countries are less than 20 percent of the shares in low-price countries. Since these are services of very low tradability, the low consumption levels of these services imply low employment in them.

Suggested Citation

  • Robert E. Lipsey & Birgitta Swedenborg, 2007. "Explaining Product Price Differences Across Countries," NBER Working Papers 13239, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:13239
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    References listed on IDEAS

    1. Davis, Steven J. & Henrekson, Magnus, 2006. "Economic Performance and Work Activity in Sweden affter the Crisis of the early 1990s," SSE/EFI Working Paper Series in Economics and Finance 647, Stockholm School of Economics, revised 03 Aug 2007.
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    4. Bertola, Giuseppe & Blau, Francine D & Kahn, Lawrence, 2001. "Comparative Analysis of Labour Market Outcomes: Lessons for the US from International Long-Run Evidence," CEPR Discussion Papers 3023, C.E.P.R. Discussion Papers.
    5. Anders Bjorklund & Richard B. Freeman, 1997. "Generating Equality and Eliminating Poverty, the Swedish Way," NBER Chapters,in: The Welfare State in Transition: Reforming the Swedish Model, pages 33-78 National Bureau of Economic Research, Inc.
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    8. Lipsey, Robert E & Swedenborg, Birgitta, 1996. "The High Cost of Eating: Causes of International Differences in Consumer Food Prices," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 42(2), pages 181-194, June.
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    Cited by:

    1. Bekkers, Eddy & Francois, Joseph & Manchin, Miriam, 2012. "Import prices, income, and inequality," European Economic Review, Elsevier, vol. 56(4), pages 848-869.

    More about this item

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • F10 - International Economics - - Trade - - - General
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs

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