Open AccessImpact of institutions on cross-border price dispersion
Author(s) -
Jiří Schwarz
Publication year - 2012
Publication title -
review of world economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.428
H-Index - 52
eISSN - 1610-2886
pISSN - 1610-2878
DOI - 10.1007/s10290-012-0131-4
Subject(s) - explanatory power , arbitrage , dispersion (optics) , economics , corporate governance , quality (philosophy) , european integration , regression analysis , price dispersion , econometrics , european union , international economics , financial economics , statistics , mathematics , finance , philosophy , physics , epistemology , optics
This paper analyzes the role of institutions in price dispersion among cities in the European region in the 1996–2009 period. An overview of the literature on the border effect reveals that the role of institutions is completely neglected. Using the Worldwide Governance Indicators as explanatory variables I find that the better the institutions, the lower the predicted dispersion. The result is robust to different specifications of the regression model and it is consistent with a hypothesis that arbitrage, as an entrepreneurial activity and the main power behind the law of one price, is influenced by institutional quality.
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