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Purchasing power parity and free trade area

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  • Lee, Chin

Abstract

The aim of this paper is to apply recently developed panel cointegration techniques proposed by Pedroni (1999, 2004) to evaluate the effectiveness of various regional trade agreements by examine the goods market integration between trading partners using purchasing power parity (PPP). The results obtained from panel cointegration tests strongly support the validity of long-run PPP in almost all cases. Evidence of price convergence suggested that the panel countries of free trade areas (FTAs) are integrated, hence FTAs has fostererd the price convergence.

Suggested Citation

  • Lee, Chin, 2010. "Purchasing power parity and free trade area," MPRA Paper 40431, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:40431
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    File URL: https://mpra.ub.uni-muenchen.de/40431/1/MPRA_paper_40431.pdf
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    References listed on IDEAS

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    2. Pedroni, Peter, 2004. "Panel Cointegration: Asymptotic And Finite Sample Properties Of Pooled Time Series Tests With An Application To The Ppp Hypothesis," Econometric Theory, Cambridge University Press, vol. 20(3), pages 597-625, June.
    3. Aggarwal, Raj & Simmons, Walter, 2006. "Eonomic integration among caribbean countries: Evidence from purchasing power parity, 1980-2000," Journal of Policy Modeling, Elsevier, vol. 28(3), pages 277-280, April.
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    6. Laureti, Lucio, 2001. "Purchasing power parity and integration: Empirical evidence in the Mediterranean countries," Journal of Policy Modeling, Elsevier, vol. 23(7), pages 731-751, October.
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    Cited by:

    1. Lim, Eun Son & Breuer, Janice Boucher, 2019. "Free trade agreements and market integration: Evidence from South Korea," Journal of International Money and Finance, Elsevier, vol. 90(C), pages 241-256.

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    More about this item

    Keywords

    purchasing power parity; economic integration; free trade area; panel cointegration test;
    All these keywords.

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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