Working Paper

Borders and Big Macs

Abstract: I measure the extent of international market segmentation using local, national, and international Big Mac prices. I show that the bulk of time-series price volatility observed across the United States arises between neighboring locations. Using these data, I provide new estimates of border frictions for 14 countries. I find that borders generally introduce only small price wedges, far smaller than those observed across neighboring locations. When expressing these wedges in terms of distance equivalents, I find that border widths are small in relation to price variations observed across the United States. This suggests that international markets are well integrated.

JEL Classification: F4;

Bibliographic Information

Provider: Federal Reserve Bank of Dallas

Part of Series: Globalization Institute Working Papers

Publication Date: 2011

Number: 95

Note: Published as: Landry, Anthony (2013), "Borders and Big Mac," Economics Letters 120 (2): 318-322.