Revisiting the importance of border effect in sub‐national regions. Evidence from a quasi‐experimental design
Literature provides significant border effects on consumer prices even for sub‐national regions. Nevertheless, Gorodnichenko and Tesar showed that the evidence from the usual methodology could be illusory if there is cross‐regional heterogeneity in the distribution of within‐region price differentials. We designed a quasi‐experiment that, using a transport fuel dataset, is applied to the Spanish regions. We found that, despite controlling for regional tax divergences, price differences remained critically dependent on regions. However, results suggest that the presence of borders per se is practically negligible to explain the lack of regional integration. Factors underlying the distribution heterogeneity are responsible for this.
Publisher URL: https://onlinelibrary.wiley.com/doi/abs/10.1111/pirs.12298