Distance and Political Boundaries: Estimating Border Effects under Inequality Constraints. / Fernando Borraz, Alberto Cavallo, Roberto Rigobon, Leandro Zipitría.

Format:

Book

Author/Creator:

Borraz, Fernando.

Contributor:

National Bureau of Economic Research.

Cavallo, Alberto.

Rigobon, Roberto.

Zipitría, Leandro.

Series:

Working Paper Series (National Bureau of Economic Research) no. w18122.

NBER working paper series no. w18122

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2012.

Summary:

The "border effect" literature finds that political borders have a very large impact on relative prices, implicitly adding several thousands of miles to trade. In this paper we show that the standard empirical specification suffers from selection bias, and propose a new methodology based on quantile regressions. Using a novel data set from Uruguay, we apply our procedure to measure the segmentation introduced by city borders. City borders should matter little for trade. We find that when the standard methodology is used, two supermarkets separated by 10 kilometers across two different cities have the same price dispersion as two supermarkets separated by 30 kilometers within the same city; so the city border triples the distance. When our methodology is used, the city border effect becomes insignificant. We further test our methodology using online prices for the largest supermarket chain in the country, and show that the "online border" is equivalent to the average distance from the online warehouse to each of the offline stores.

Notes:

Print version record

June 2012.