Do Canadians Pay More than Americans for the Same Products?

Abstract

The paper examines whether Canadians were paying more than the Americans for the goods and services they purchase. Based on more than 160 product price data for each of the five years under study (1985, 1990, 1993, 1996, 1999), the study finds that there were, on average, no significant price differences between the two countries for highly standardized products that flow relatively freely across borders. There were, however, subsets of products with significant differences. Over the period under study, Canadian consumers on average paid 4% more for highly differentiated tradable products, but 8% less for products that are not easily traded across borders, such as services. Given the size of the service sector, lower prices for services in Canada plays an important role in determining our standard of living compared with the United States. We also find that the shifts in the price differences (expressed in the same currency) generally reflected fluctuations in the exchange rate. Canadian prices adapt with a lag to U.S. price changes that are brought about by changes in the exchange rate.

Keywords: consumer goods and services, consumer prices, price comparisons, purchase price, purchasing power

JEL Classification: N52, E30