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One Country, Two Prices? A Study of the Deflationary Effect of Price Convergence on Hong Kong

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  • Jiming Ha
  • Kelvin Fan

Abstract

Consumer prices in Hong Kong at the time of writing have declined by 15 percent from the peak recorded in 1998. We investigate the deflationary impact on Hong Kong of price convergence with the Mainland China, using 1990–2001 annual data on commodity prices in the former and in major cities of the latter. We find evidence of price convergence between the two economies over the past decade. Furthermore, price convergence is estimated to have accounted for one‐fifth of the deflation in Hong Kong. The results suggest that a significant portion of the deflation in Hong Kong is attributable to a process of structural adjustment due to growing economic integration with the Mainland.

Suggested Citation

  • Jiming Ha & Kelvin Fan, 2004. "One Country, Two Prices? A Study of the Deflationary Effect of Price Convergence on Hong Kong," Asian Economic Journal, East Asian Economic Association, vol. 18(4), pages 405-421, December.
    • Handle: RePEc:bla:asiaec:v:18:y:2004:i:4:p:405-421
    DOI: 10.1111/j.1467-8381.2004.00198.x
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    References listed on IDEAS

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    7. Maddala, G S & Wu, Shaowen, 1999. "A Comparative Study of Unit Root Tests with Panel Data and a New Simple Test," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 61(0), pages 631-652, Special I.
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    Cited by:

    1. Mehrotra, Aaron N., 2007. "Exchange and interest rate channels during a deflationary era--Evidence from Japan, Hong Kong and China," Journal of Comparative Economics, Elsevier, vol. 35(1), pages 188-210, March.
    2. repec:zbw:bofitp:2005_017 is not listed on IDEAS
    3. Necmettin Tarhan Feyzioglu & Luke Byrne Willard, 2008. "Does China have Inflationary Effects on the USA and Japan?," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 16(1), pages 1-16, January.
    4. Mehrotra, Aaron N., 2007. "Exchange and interest rate channels during a deflationary era--Evidence from Japan, Hong Kong and China," Journal of Comparative Economics, Elsevier, vol. 35(1), pages 188-210, March.
    5. Mr. Luke B Willard & Mr. Tarhan Feyzioglu, 2006. "Does Inflation in China Affect the United States and Japan?," IMF Working Papers 2006/036, International Monetary Fund.

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