Estimating the Border Effect: Some New Evidence / Gita Gopinath, Pierre-Olivier Gourinchas, Chang-Tai Hsieh, Nicholas Li.

Format:

Book

Author/Creator:

Gopinath, Gita.

Contributor:

National Bureau of Economic Research.

Gourinchas, Pierre-Olivier.

Hsieh, Chang-Tai.

Li, Nicholas.

Series:

Working Paper Series (National Bureau of Economic Research) no. w14938.

NBER working paper series no. w14938

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Estimating the Border Effect

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2009.

Summary:

To what extent do national borders and national currencies impose costs that segment markets across countries? To answer this question we use a dataset with product level retail prices and wholesale costs for a large grocery chain with stores in the U.S. and Canada. We develop a model of pricing by location and employ a regression discontinuity approach to estimate and interpret the border effect. We report three main facts: 1) The median absolute retail price and whole-sale cost discontinuity between adjacent stores on either side of the U.S.-Canada border is as high as 21%. In contrast, within-country border discontinuity is close to 0%; 2) The variation in the retail price gap at the border is almost entirely driven by variation in wholesale costs, not by variation in markups; 3) The border gap in prices and costs co-move almost one to one with changes in the U.S.-Canada nominal exchange rate. We show these facts suggest that the price gaps we estimate provide only a lower bound on border costs.

Notes:

Print version record

April 2009.