Product price differences across countries: determinants and effects |
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Authors: | Robert E Lipsey Birgitta Swedenborg |
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Institution: | (1) National Bureau of Economic Research, 365 Fifth Avenue, 5th Floor, New York, NY 10016-4309, USA;(2) Center for Business and Policy Studies (SNS), Box 5629, 114 86 Stockholm, Sweden |
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Abstract: | A substantial part of international differences in prices of individual products, both goods and services, can be explained
by differences in per capita income, wage compression, or low wage dispersion among low-wage workers, and exchange rate fluctuations.
Higher per capita income is associated with higher prices and higher wage dispersion with lower prices. The effects of higher
income and wage dispersion are moderated for the more tradable products. The effects of wage dispersion, on the other hand,
are magnified for the more labor-intensive products, particularly low-skill services. The differences in prices across countries
are reflected in differences in the composition of consumption. Countries in which prices of labor-intensive services are
very high, such as the Nordic countries, consume much less of them. For some services, the shares of GDP consumed in high-price
countries are less than 20% of the shares in low-price countries. Since these are services of very low tradability, the low
consumption levels of these services imply low employment in them. |
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