Price divergence is readily apparent to anyone who shops. Travelers from Manchester to London, or from Chicago to Paris, are hit by sticker shock. Products ranging from London Fog raincoats to Viagra are available over the Internet at half their retail store prices. Common experience tells us that prices for identical products differ between countries, between cities, even between neighboring shops. On the other hand, common experience also tells us that open markets and greater competition will force a degree of price convergence, if not identical prices.
This monograph presents speculative calculations that illustrate potential benefits from price convergence between countries. The authors take a fresh look at global economic integration by examining existing price divergence, and possible price convergence, across a range of consumer goods and then calculate the potential benefits of price convergence on a country-by-country basis and for the world as a whole. This study examines the potential benefits from price convergence resulting from more competition and market integration, not perfect competition and market integration. The authors calculate these benefits assuming that the world economy can attain the same degree of competition and market integration—and hence price convergence—as exists within the United States.
- Cover
- Contents
- Preface
- Acknowledgments
- Executive Summary
- Introduction
- Ch 2 The Law of One Price and Its Limits
- Literature Survey
- Trade, Direct Foreign Investment, and Price Convergence
- Lower Barriers, Better Technology, More Convergence
- Ch 3 The Broad World Price Band
- Appropriate Exchange Rates
- Ch 4 Potential Static Benefits: Methodology
- Ch 5 Calculation of BenefitsCountry by
Country
- Benefits Calculated Starting with Market Exchange Rates
- Benefits Calculated Starting with PPP Exchange Rates
- Additional Calculations
- Ch 6 Implied Imports and Exports
- Ch 7 Future Research: Mapping Policy Choices to Price Convergence
- Ch 8 Concluding Observations
- Appendix A World Price Bands
- Appendix B Static Benefits from Price Convergence
- Appendix C The Exchange Rate Wedge and the Exchange Rate System
- Appendix D An Alternative Calculation of the Benefits of Price Convergence in Both Tradable and Service Sectors
- References
- Index
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