Distance and Political Boundaries: Estimating Border Effects under Inequality Constraints
The ‘border effects’ literature finds that political boundaries have a large impact on relative prices across locations. In this paper, we show that the standard empirical specification suffers from selection bias and propose a new methodology based on binned-quantile regressions. We use a novel mic...
| Main Authors: | , , , |
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| Format: | Article |
| Language: | en_US |
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John Wiley & Sons
2016
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| Online Access: | http://hdl.handle.net/1721.1/104886 https://orcid.org/0000-0002-9701-3507 https://orcid.org/0000-0002-9054-3804 |
| _version_ | 1826201310391697408 |
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| author | Borraz, Fernando Zipitria, Leandro Cavallo, Alberto F. Rigobon, Roberto |
| author2 | Massachusetts Institute of Technology. Department of Economics |
| author_facet | Massachusetts Institute of Technology. Department of Economics Borraz, Fernando Zipitria, Leandro Cavallo, Alberto F. Rigobon, Roberto |
| author_sort | Borraz, Fernando |
| collection | MIT |
| description | The ‘border effects’ literature finds that political boundaries have a large impact on relative prices across locations. In this paper, we show that the standard empirical specification suffers from selection bias and propose a new methodology based on binned-quantile regressions. We use a novel micro-price dataset from Uruguay and focus on city borders. We find that, when the standard methodology is used, two supermarkets separated by 10 km across two different cities have the same price dispersion as two supermarkets separated by 30 km within the same city, implying that crossing a city border is equivalent to tripling the distance. By contrast, when upper quantiles are used the city border effect disappears. These findings imply that transport cost have been systematically underestimated by the previous literature. Our methodology can be applied to measure any kind of border effect. We illustrate this in the context of online–offline price dispersion to measure an ‘online-border’ effect in the city of Montevideo. |
| first_indexed | 2024-09-23T11:49:34Z |
| format | Article |
| id | mit-1721.1/104886 |
| institution | Massachusetts Institute of Technology |
| language | en_US |
| last_indexed | 2024-09-23T11:49:34Z |
| publishDate | 2016 |
| publisher | John Wiley & Sons |
| record_format | dspace |
| spelling | mit-1721.1/1048862022-09-27T22:12:00Z Distance and Political Boundaries: Estimating Border Effects under Inequality Constraints Borraz, Fernando Zipitria, Leandro Cavallo, Alberto F. Rigobon, Roberto Massachusetts Institute of Technology. Department of Economics Sloan School of Management Cavallo, Alberto F. Cavallo, Alberto F. Rigobon, Roberto The ‘border effects’ literature finds that political boundaries have a large impact on relative prices across locations. In this paper, we show that the standard empirical specification suffers from selection bias and propose a new methodology based on binned-quantile regressions. We use a novel micro-price dataset from Uruguay and focus on city borders. We find that, when the standard methodology is used, two supermarkets separated by 10 km across two different cities have the same price dispersion as two supermarkets separated by 30 km within the same city, implying that crossing a city border is equivalent to tripling the distance. By contrast, when upper quantiles are used the city border effect disappears. These findings imply that transport cost have been systematically underestimated by the previous literature. Our methodology can be applied to measure any kind of border effect. We illustrate this in the context of online–offline price dispersion to measure an ‘online-border’ effect in the city of Montevideo. Agencia Nacional de Investigación e Innovación (Uruguay) (Grant # ‘FMV_2_2011_1_6318) 2016-10-20T18:35:56Z 2016-10-20T18:35:56Z 2015-04 2014-10 Article http://purl.org/eprint/type/JournalArticle 10769307 10991158 http://hdl.handle.net/1721.1/104886 Borraz, Fernando, Alberto Cavallo, Roberto Rigobon, and Leandro Zipitria. "International Journal of Finance & Economics." vol. 21, no. 1, January 2016, pp. 3-35. https://orcid.org/0000-0002-9701-3507 https://orcid.org/0000-0002-9054-3804 en_US http://dx.doi.org/10.1002/ijfe.1517 International Journal of Finance & Economics Creative Commons Attribution-Noncommercial-Share Alike http://creativecommons.org/licenses/by-nc-sa/4.0/ application/pdf John Wiley & Sons Cavallo |
| spellingShingle | Borraz, Fernando Zipitria, Leandro Cavallo, Alberto F. Rigobon, Roberto Distance and Political Boundaries: Estimating Border Effects under Inequality Constraints |
| title | Distance and Political Boundaries: Estimating Border Effects under Inequality Constraints |
| title_full | Distance and Political Boundaries: Estimating Border Effects under Inequality Constraints |
| title_fullStr | Distance and Political Boundaries: Estimating Border Effects under Inequality Constraints |
| title_full_unstemmed | Distance and Political Boundaries: Estimating Border Effects under Inequality Constraints |
| title_short | Distance and Political Boundaries: Estimating Border Effects under Inequality Constraints |
| title_sort | distance and political boundaries estimating border effects under inequality constraints |
| url | http://hdl.handle.net/1721.1/104886 https://orcid.org/0000-0002-9701-3507 https://orcid.org/0000-0002-9054-3804 |
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