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Border Effect or Country Effect? Seattle May Not Be so Far from Vancouver After All

Border Effect or Country Effect? Seattle May Not Be so Far from Vancouver After All Abstract This paper reexamines the evidence on the border effect. We argue that if there is cross-country heterogeneity in the distribution of within-country price differentials, there is no clear benchmark from which to gauge the effect of a border. In the absence of a structural model or a (natural) experiment, it is impossible to separate the “border” effect from the effect of trading with a country with a different distribution of prices. We show that the border effect identified by Engel and Rogers (1996) is entirely driven by the difference in the distribution of prices within the United States and Canada. (JEL F11 , F14 ) http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png American Economic Journal: Macroeconomics American Economic Association

Border Effect or Country Effect? Seattle May Not Be so Far from Vancouver After All

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Publisher
American Economic Association
Copyright
Copyright © 2009 by the American Economic Association
Subject
Articles
ISSN
1945-7715
eISSN
1945-7715
DOI
10.1257/mac.1.1.219
Publisher site
See Article on Publisher Site

Abstract

Abstract This paper reexamines the evidence on the border effect. We argue that if there is cross-country heterogeneity in the distribution of within-country price differentials, there is no clear benchmark from which to gauge the effect of a border. In the absence of a structural model or a (natural) experiment, it is impossible to separate the “border” effect from the effect of trading with a country with a different distribution of prices. We show that the border effect identified by Engel and Rogers (1996) is entirely driven by the difference in the distribution of prices within the United States and Canada. (JEL F11 , F14 )

Journal

American Economic Journal: Macroeconomics – American Economic Association

Published: Jan 1, 2009

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