Estimating the Border Effect: Some New Evidence

52 Pages Posted: 19 Sep 2009  

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

Multiple version iconThere are 3 versions of this paper

Date Written: September 14, 2009

Abstract

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.

JEL Classification: F3, F4, F1

Suggested Citation

Gopinath, Gita and Gourinchas, Pierre-Olivier and Hsieh, Chang-Tai and Li, Nicholas, Estimating the Border Effect: Some New Evidence (September 14, 2009). Federal Reserve Bank of Boston Working Paper No. 09-10. Available at SSRN: https://ssrn.com/abstract=1475341 or http://dx.doi.org/10.2139/ssrn.1475341

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
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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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