Price Equalization Does Not Imply Free Trade
18 Pages Posted: 29 Mar 2016 Last revised: 15 Oct 2019
Date Written: 2015
In this article, the authors demonstrate the possibility of price equalization in a two-country world with barriers to international trade. For price equalization to occur when the countries are asymmetric, the country with higher productivity must also be the one with the lower trade barrier. A corollary of the authorsâ€™ result is that small departures from purchasing power parity do not necessarily imply that world trade is mostly integrated.
JEL Classification: F11, F13, F14
Suggested Citation: Suggested Citation