Abstract

http://ssrn.com/abstract=1433858
 
 

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Estimating the Border Effect: Some New Evidence


Gita Gopinath


Harvard University - Department of Economics; National Bureau of Economic Research (NBER)

Pierre-Olivier Gourinchas


University of California, Berkeley - Department of Economics; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Chang-Tai Hsieh


University of Chicago - Booth School of Business; University of California, Berkeley - Department of Economics; National Bureau of Economic Research (NBER)

Nicholas Li


University of Toronto - Department of Economics

April 2009

CEPR Discussion Paper No. DP7281

Abstract:     
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.

Number of Pages in PDF File: 53

Keywords: barcode data, border effect, law of one price, market segmentation

JEL Classification: F40, F41

working papers series





Date posted: July 15, 2009  

Suggested Citation

Gopinath, Gita and Gourinchas, Pierre-Olivier and Hsieh, Chang-Tai and Li, Nicholas, Estimating the Border Effect: Some New Evidence (April 2009). CEPR Discussion Paper No. DP7281. Available at SSRN: http://ssrn.com/abstract=1433858

Contact Information

Gita Gopinath (Contact Author)
Harvard University - Department of Economics ( email )
Littauer Center
Cambridge, MA 02138
United States
National Bureau of Economic Research (NBER) ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Pierre-Olivier Gourinchas
University of California, Berkeley - Department of Economics ( email )
549 Evans Hall #3880
Berkeley, CA 94720-3880
United States
HOME PAGE: http://socrates.berkeley.edu/~pog/
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
Chang-Tai Hsieh
University of Chicago - Booth School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
University of California, Berkeley - Department of Economics ( email )
549 Evans Hall #3880
Berkeley, CA 94720-3880
United States
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Nicholas Li
University of Toronto - Department of Economics ( email )
150 St. George Street
Toronto, Ontario M5S 3G7
Canada
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References:  22
Citations:  8

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