Price equalization, trade flows, and barriers to trade

Piyusha Mutreja, B. Ravikumar, Raymond Riezman, Michael Sposi

Research output: Contribution to journalArticle

5 Citations (Scopus)

Abstract

In this paper we show that price equalization does not imply zero barriers to trade. There are many barrier combinations that deliver price equalization, but each combination implies a different volume of trade. We demonstrate this first theoretically in a simple two-country model and then quantitatively for the case of capital goods trade in a multi-country model. To be quantitatively consistent with the observed capital goods trade flows across countries, our model implies that trade barriers must be large, yet our model delivers capital goods prices that are similar across countries. The absence of barriers to trade in capital goods delivers price equalization in capital goods but cannot reproduce the observed trade flows.

Original languageEnglish (US)
Pages (from-to)383-398
Number of pages16
JournalEuropean Economic Review
Volume70
DOIs
StatePublished - 2014
Externally publishedYes

Fingerprint

Equalization
Trade flows
Trade barriers
Two-country model
Multi-country model

Keywords

  • Barriers to trade
  • Capital goods trade
  • Price equalization

ASJC Scopus subject areas

  • Economics and Econometrics
  • Finance

Cite this

Price equalization, trade flows, and barriers to trade. / Mutreja, Piyusha; Ravikumar, B.; Riezman, Raymond; Sposi, Michael.

In: European Economic Review, Vol. 70, 2014, p. 383-398.

Research output: Contribution to journalArticle

Mutreja, Piyusha ; Ravikumar, B. ; Riezman, Raymond ; Sposi, Michael. / Price equalization, trade flows, and barriers to trade. In: European Economic Review. 2014 ; Vol. 70. pp. 383-398.
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