TY  - JOUR
AU  - Gopinath,Gita
AU  - Gourinchas,Pierre-Olivier
AU  - Hsieh,Chang-Tai
AU  - Li,Nicholas
TI  - Estimating the Border Effect: Some New Evidence
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 14938
PY  - 2009
Y2  - April 2009
UR  - http://www.nber.org/papers/w14938
L1  - http://www.nber.org/papers/w14938.pdf
N1  - Author contact info:
Gita Gopinath
Department of Economics
Harvard University
1875 Cambridge Street
Littauer 206
Cambridge, MA 02138
Tel: 617/495-8161
Fax: 617/495-7730
E-Mail: gopinath@harvard.edu

Pierre-Olivier Gourinchas
Department of Economics
University of California, Berkeley
530 Evans Hall #3880
Berkeley, CA 94720-3880
Tel: 510/643-0720
Fax: 510/642-6615
E-Mail: pog@econ.berkeley.edu

Chang-Tai Hsieh
Booth School of Business
University of Chicago
5807 S Woodlawn Ave
Chicago, IL 60637
Tel: 773/8340590
Fax: 484-589-3583
E-Mail: chsieh@chicagoBooth.edu

Nicholas Li
UC, Berkeley
E-Mail: nick.li@utoronto.ca
AB  - To what extent do national borders and national currencies impose costs that segment markets across countries? To answer this question we use a dataset with product level retail prices and wholesale costs for a large grocery chain with stores in the U.S. and Canada. We develop a model of pricing by location and employ a regression discontinuity approach to estimate and interpret the border effect. We report three main facts: 1) The median absolute retail price and whole-sale cost discontinuity between adjacent stores on either side of the U.S.-Canada border is as high as 21%. In contrast, within-country border discontinuity is close to 0%; 2) The variation in the retail price gap at the border is almost entirely driven by variation in wholesale costs, not by variation in markups; 3) The border gap in prices and costs co-move almost one to one with changes in the U.S.-Canada nominal exchange rate. We show these facts suggest that the price gaps we estimate provide only a lower bound on border costs.
ER  -