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Explaining the Cross-Sectional Distribution of Law of One Price Deviations
by
Rahul Giri
A Dissertation Presented to the
FACULTY OF THE GRADUATE SCHOOL
UNIVERSITY OF SOUTHERN CALIFORNIA
In Partial Fulfillment of the
Requirements for the Degree
Doctor of Philosophy
(ECONOMICS)
August 2008
Copyright 2008 Rahul Giri
Object Description
| Title | Explaining the cross-sectional distribution of law of one price deviations |
| Author | Giri, Rahul |
| Author email | rgiri@usc.edu; rahul.giri@gmail.com |
| Degree | Doctor of Philosophy |
| Document type | Dissertation |
| Degree program | Economics |
| School | College of Letters, Arts and Sciences |
| Date defended/completed | 2008-04-30 |
| Date submitted | 2008 |
| Restricted until | Unrestricted |
| Date published | 2008-08-04 |
| Advisor (committee chair) | Betts, Caroline |
| Advisor (committee member) |
Quadrini, Vincenzo Kim, Yong Joines, Doug |
| Abstract | Observed trade flows provide one metric to gauge the degree of international goods market segmentation. Deviations from the law of one price provide another. New survey data on retail prices for a broad cross section of goods across 13 EU countries, compiled by Crucini, Telmer and Zachariadis (2005), show that (i) the average dispersion of law of one price (LOOP) deviations across all goods is 28 percent and (ii) the range of that dispersion across goods is large, varying from 2 percent to 83 percent. Quantitative multi-country ricardian models, a la Eaton and Kortum, use data on bilateral trade volumes to estimate international trade barriers or trade costs. I find that a multi-country ricardian model with perfectly competitive markets, in which heterogeneous and asymmetric trade costs are carefully calibrated to match observed bilateral trade volumes, can account for 85 percent of the average dispersion but only 21 percent of the variation in price dispersion.; When the model is augmented to permit heterogeneity in local costs of distribution -- across goods and countries -- and is calibrated to match data on distribution margins, it can reproduce 96.5 percent of the average dispersion of law of one price deviations and 32 percent of the variation in that dispersion. Changing the market structure in the production of goods, from perfectly competitive to competition in prices, leads to a large overprediction of average price dispersion but helps to account for 44 percent of the variation in price dispersion, still leaving 56 percent of variation unexplained. Heterogeneity in trade costs, and in local distribution costs, and variable markups in the production of goods cannot account for observed heterogeneity in the dispersion of law of one price deviations. |
| Keyword | trade; international trade costs; distribution costs; law of one price; imperfect competition; Bertrand competition |
| Language | English |
| Part of collection | University of Southern California dissertations and theses |
| Publisher (of the original version) | University of Southern California |
| Place of publication (of the original version) | Los Angeles, California |
| Publisher (of the digital version) | University of Southern California. Libraries |
| Provenance | Electronically uploaded by the author |
| Type | texts |
| Legacy record ID | usctheses-m1375 |
| Rights | Giri, Rahul |
| Repository name | Libraries, University of Southern California |
| Repository address | Los Angeles, California |
| Repository email | http://www.usc.edu/isd/libraries/services/ask_a_librarian/email/ |
| Filename | etd-Giri-2058 |
| Archival file | uscthesesreloadpub_Volume14/etd-Giri-2058.pdf |
Description
| Title | Page 1 |
| Full text | Explaining the Cross-Sectional Distribution of Law of One Price Deviations by Rahul Giri A Dissertation Presented to the FACULTY OF THE GRADUATE SCHOOL UNIVERSITY OF SOUTHERN CALIFORNIA In Partial Fulfillment of the Requirements for the Degree Doctor of Philosophy (ECONOMICS) August 2008 Copyright 2008 Rahul Giri |
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