Consider in turn the markets for products, capital and workers. One measure of the extent to which product markets are integrated is the ratio of trade to output. This has increased sharply in most countries since 1950. Another gauge of the degree of product-market integration is the extent to which prices converge across countries. In theory, free trade should push prices together as competition forces high-cost producers to lower their prices.
Studies show, however, that large divergences in price often persist for long periods.
Laptop computers and Levi's jeans, for example, are consistently cheaper in America than in Europe or Japan. This reflects a variety of factors, including tastes, transport costs, differences in taxes and inefficient distribution networks. But some of the difference is due to the persistence of import barriers. Product markets are still nowhere near as integrated across borders as they are within nations. Consider the example of trade between the United States and Canada, one of the least restricted trading borders in the world.