NDLI: Does the Law of One Price hold? A cross-regional study of China

Content Provider	Taylor & Francis Online
Author	Chang, Hsu-Ling Liu, Tie-Ying Su, Chi-Wei Xiong, De-Ping
Abstract	This study considers the price convergence in different regions of China, which is the largest developing country in the world and a country in which the regional difference is much larger between provinces. Whether there is price convergence between regions in one country is an important economic issue according to the Law of One Price (LOP) theory. Compared to previous studies, this article operates with the Sequential Panel Selection Method (SPSM) to explore the non-stationary properties of the LOP in China’s regions. We provide robust evidence to specify that the LOP holds true for two-thirds of the provinces in China, mainly in the Western and Central regions. This means that the Eastern region’s price fluctuation is non-stationary and that the consumer price index (CPI) levels of the Western, Central and Northeastern regions are relatively convergent in China. The conduction path of the CPI level is from the Eastern region to the other regions. It shows that prices can converge with each other by LOP and the values of the same goods in the Western and Central regions are equal and if there is a price difference, then it can be eliminated by interregional trade.
Starting Page	592
Ending Page	606
Page Count	15
File Format	PDF HTM / HTML
ISSN	1331677X 18489664
DOI	10.1080/1331677X.2018.1429294
Journal	Economic Research-Ekonomska Istraživanja
Volume Number	31
Issue Number	1
Language	English
Publisher	Routledge
Publisher Date	2018-03-07
Access Restriction	Open
Subject Keyword	Sequential panel selection method (SPSM) Law of One Price (LOP) Consumer price index (CPI) E21 E31 E23
Content Type	Text
Resource Type	Article
Subject	Economics and Econometrics

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