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https://doi.org/10.1080/1331677X.2018.1429294

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

Tie-Ying Liu ; School of Economics and Management, Beijing Jiaotong University, Beijing, China
Chi-Wei Su ; Department of Finance, Ocean University of China, Qingdao, China
Hsu-Ling Chang ; Department of Accounting and Information, Ling Tung University, Taichung, Taiwan
De-Ping Xiong ; School of Finance, Yunnan University of Finance and Economics, Kunming, China


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Sažetak

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.

Ključne riječi

Sequential panel selection method (SPSM); Law of One Price (LOP); consumer price index (CPI)

Hrčak ID:

200693

URI

https://hrcak.srce.hr/200693

Datum izdavanja:

3.12.2018.

Posjeta: 697 *