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Impact of institutions on cross-border price dispersion

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  • Jiří Schwarz

Abstract

This paper analyzes the role of institutions in price dispersion among cities in the European region in the 1996–2009 period. An overview of the literature on the border effect reveals that the role of institutions is completely neglected. Using the Worldwide Governance Indicators as explanatory variables I find that the better the institutions, the lower the predicted dispersion. The result is robust to different specifications of the regression model and it is consistent with a hypothesis that arbitrage, as an entrepreneurial activity and the main power behind the law of one price, is influenced by institutional quality. Copyright Kiel Institute 2012

Suggested Citation

  • Jiří Schwarz, 2012. "Impact of institutions on cross-border price dispersion," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 148(4), pages 617-645, December.
    • Handle: RePEc:spr:weltar:v:148:y:2012:i:4:p:617-645
    DOI: 10.1007/s10290-012-0131-4
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    3. repec:cnb:ocpubv:rb10/2 is not listed on IDEAS
    4. repec:cnb:ocpubv:rb12/1 is not listed on IDEAS
    5. repec:cnb:ocpubv:rb12/2 is not listed on IDEAS
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    More about this item

    Keywords

    Border effect; Price dispersion; Price convergence; Law of one price; Institutional quality; D23; E31; F41; L26;
    All these keywords.

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship

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