NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

A Re-Examination of the Border Effect

Yuriy Gorodnichenko, Linda Tesar

NBER Working Paper No. 11706
Issued in October 2005
NBER Program(s):   IFM

This paper reexamines the evidence on the border effect, the finding that the border drives a wedge between domestic and foreign prices. We argue that the border effect can be inflated by the volatility and persistence of the nominal exchange rate and by the cross-country heterogeneity in the distribution of within-country price differentials. We develop a simple framework to separate the border effect from these confounding factors. Using price data from Engel and Rogers (1996) and Parsley and Wei (2001), we show that after controlling for the confounding factors the border effect between the U.S. and Canada and the U.S. and Japan is negligible.

download in pdf format
   (365 K)

email paper

This paper is available as PDF (365 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w11706

Users who downloaded this paper also downloaded these:
Gopinath, Gourinchas, Hsieh, and Li w14938 Estimating the Border Effect: Some New Evidence
parsley and Wei w7836 Explaining the Border Effect: The Role of Exchange Rate Variability, Shipping Costs, and Geography
Crucini, Shintani, and Tsuruga w14835 The Law of One Price Without the Border: The Role of Distance Versus Sticky Prices
Anderson and van Wincoop w8079 Gravity with Gravitas: A Solution to the Border Puzzle
Borraz, Cavallo, Rigobon, and Zipitria w18122 Distance and Political Boundaries: Estimating Border Effects under Inequality Constraints.
 
Publications
Activities
Meetings
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us