This paper reexamines the evidence on the border effect. We argue
that if there is cross-country heterogeneity in the distribution of
within-country price differentials, there is no clear benchmark from
which to gauge the effect of a border. In the absence of a structural
model or a (natural) experiment, it is impossible to separate
the "border" effect from the effect of trading with a country with a
different distribution of prices. We show that the border effect identified
by Engel and Rogers (1996) is entirely driven by the difference
in the distribution of prices within the United States and Canada.
(JEL F11, F14)
Gorodnichenko, Yuriy, and Linda L. Tesar.
"Border Effect or Country Effect? Seattle May Not Be So Far from Vancouver After All."
American Economic Journal: Macroeconomics,
Neoclassical Models of Trade
Country and Industry Studies of Trade