Bias in estimating border- and distance-related trade costs: Insights from an oligopoly model

A. Kerem Coşar, Paul L.E. Grieco, Felix Tintelnot

Research output: Contribution to journalArticlepeer-review

3 Scopus citations

Abstract

Regressions of price differences between locations in different countries without controlling for the local market structure and the location of origin will lead to a biased estimate of the impact of national boundaries. We demonstrate that non-classical measurement error in distance and unaccounted mark-up differences across countries are responsible for these biases. In a quantitative exercise based on our previous work (Coşar et al., 2014), we show that the estimated border effect with price difference regressions overstates the true border effect by a factor of two or more.

Original languageEnglish (US)
Pages (from-to)147-149
Number of pages3
JournalEconomics Letters
Volume126
DOIs
StatePublished - Jan 1 2015

All Science Journal Classification (ASJC) codes

  • Finance
  • Economics and Econometrics

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