Estimating the Border Effect: Some New Evidence

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. To what extent do national borders and national currencies impose costs that segment markets across countries? To answer this question the authors use a dataset with product-level retail prices and wholesale costs for a large grocery chain with stores in the United States and Canada. They develop a model of pricing by location and employ a regression discontinuity approach to estimate and interpret the border effect. They report three main facts: One, the median absolute retail price and wholesale cost discontinuities between adjacent stores on either side of the U.S.-Canadian border are as high as 21 percent. In contrast, within-country border discontinuity is close to 0 percent. Two, the variation in the retail price gap at the border is almost entirely driven by variation in wholesale costs, not by variation in markups. Three, the border gaps in prices and costs co-move almost one-to-one with changes in the U.S.-Canadian nominal exchange rate. They show these facts suggest that the price gaps they estimate provide only a lower bound on border costs. Terms of use: Documents in EconStor may

Frequency of Price Adjustment and Pass-Through*

“…These two sets of findings can be potentially reconciled by the evidence in Goldberg and Hellerstein (2007), Burstein and Jaimovich (2009) and Gopinath, Gourinchas, Hsieh, and Li (2009) who find that variable mark-ups play an important role at the whole-sale cost level and a limited role at the level of retail prices. Atkeson and Burstein (2007) also argue for the importance of variable mark-ups in matching empirical features of whole-sale traded goods prices.…”

Impact of institutions on cross-border price dispersion

“…Gorodnichenko and Tesar (2009) point out that cross-country heterogeneity in price dispersion can bias the border effect upwards due to the incorrect identification of the effect in the used models. However, a significant border effect between the US and Canada is also found using the regression discontinuity approach, which is immune to this identification problem (Gopinath, Gourinchas, Hsieh, & Li, 2009), as well as by countries that have very similar within-country price dispersion patterns (Horváth, Rátfai, & Döme, 2008).…”

Non-Tariff Measures: What Do We Know, What Might Be Done?

“…It is very demanding because ideally it requires data at the product level (e.g. at the universal product code level as in Gopinath et al (2009)). This precludes using the approach for a larger number of countries and products.…”

“…Most efforts at reducing NTMs have either occurred unilaterally or (mostly) at the regional level and there has been little progress at harmonization at 1 If these estimates seem high, they are confirmed by recent estimates of the 'border effect' based on homogenous products. Using detailed data at the Universal Product code level for 1800 stores for a large retail chain on both sides of the US-Canada border and for close to 40 million products, Gopinath et al (2009) find that for some products a retail price discontinuity as high as 21% for stores on either side of the border while it is close to zero for stores on the same side of the border. 2 See the discussion and evidence in (Berthelon andFreund, 2008, Carrère et al (2009), Disdier and Head, 2008).…”