Explaining product price differences across countries
By: Robert E. Lipsey, Birgitta Swedenborg.
Contributors: Swedenborg, Birgitta, 1941-; National Bureau of Economic Research.
Series: NBER working paper series -- no. 13239.; Working paper series (National Bureau of Economic Research) -- working paper no. 13239.
Publisher: National Bureau of Economic Research
Published: 2007
Place of publication: Cambridge, Mass
Language: eng
Number of pages: 40
Subjects: Manufactures -- Prices; Income distribution -- Econometric models
Description: A substantial part of international differences in prices of individual products, both goods and services, can be explained by differences in per capita income, wage compression, or low wage dispersion among low-wage workers, and short-term exchange rate fluctuations. Higher per capita income is associated with higher prices and higher wage dispersion with lower prices. The effects of higher income and wage dispersion are moderated for the more tradable products. The effects of wage dispersion, on the other hand, are magnified for the more labor-intensive products, particularly low-skill services. The differences in prices across countries are reflected in differences in the composition of consumption. Countries in which prices of labor-intensive services are very high, such as the Nordic countries, consume much less of them. For some services, the shares of GDP consumed in high-price countries are less than 20 percent of the shares in low-price countries. Since these are services of very low tradability, the low consumption levels of these services imply low employment in them.
Notes: "July 2007"

Includes bibliographical references (p. 29-31).

Also available in PDF from the NBER world wide web site (www.nber.org).