Tradability, productivity, and international economic integration |
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Authors: | Paul R. Bergin Reuven Glick |
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Affiliation: | a Department of Economics, University of California at Davis, One Shields Ave., Davis, CA 95616, United States b NBER, Cambridge, MA, United States c Economic Research Department, Federal Reserve Bank of San Francisco, 101 Market Street, San Francisco, CA 94105, United States |
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Abstract: | This paper develops a model of endogenously tradable goods to study the implications of international integration for price dispersion and pricing to market. A distinctive feature of the model is heterogeneity in both trade costs and productivity. The model highlights the role of heterogeneity in shaping how new entrants at the extensive margin differ from incumbent traders, thereby giving extensive margin movements distinctive implications relative to the intensive margin. In particular, the model predicts that international integration mainly along the extensive margin should be associated with a more limited degree of price convergence. This prediction finds support in cross-sectional regressions on European data and offers insight into recent integration episodes. |
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Keywords: | Extensive margin Endogenous tradability Price dispersion Pricing to market Trade costs |
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