Globalization and Price Dispersion: Evidence from U.S. Trade Flows

35 Pages Posted: 23 Mar 2010

See all articles by John P. Tang

John P. Tang

ANU Research School of Economics

Date Written: March 1, 2010

Abstract

Historically, the integration of international markets has corresponded with decreasing prices for traded goods due to higher competition among suppliers, scale economies, and consumption demand. In recent years, product differentiation and multinational firm pricing behavior across markets and between suppliers make it difficult to assess the degree to which this still occurs. Using a confidential panel dataset comprising the universe of U.S. import trade transactions between 1992 and 2007, this paper explores the change in prices for imported commodities across American trade partners. Overall price dispersion appears to decline, albeit unevenly, over time; nevertheless, there is considerable heterogeneity within commodity groups, geographic regions, and income levels, which may owe to increased product and quality differentiation within commodity categories. Unusually, after controlling for gravity trade factors, trade openness and extensive measures of globalization are positively associated with price dispersion, which suggests a more disaggregated approach both at the commodity and firm level to account for these differences.

Keywords: price convergence, offshoring, product differentiation, multinational firm, law of one price

Suggested Citation

Tang, John P., Globalization and Price Dispersion: Evidence from U.S. Trade Flows (March 1, 2010). US Census Bureau Center for Economic Studies Paper No. CES-WP- 10-07, Available at SSRN: https://ssrn.com/abstract=1572752 or http://dx.doi.org/10.2139/ssrn.1572752

John P. Tang (Contact Author)

ANU Research School of Economics ( email )

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