Study on the Price Convergence in the Enlarged Internal Market

Description:

The study analyzes price convergence in an enlarged EU.  Special emphasis is given to the question of why price levels in the new member states are lower than in the EU-15 (not only for non-tradable services but also for tradable goods), how price level convergence will proceed in the future, and whether this has implications for the functioning of the internal market.

The study reviews the relevant theoretical and empirical literature on price convergence in the EU. It also explores price developments in the new member states, taking their real convergence process and the reduction of trade barriers into account.

Based on a suitable data set, econometric tests are used to determine the sources of price dispersion and price convergence. Sectors where Internal market pressures towards price convergence are the most pronounced are identified.

Sponsor:

ECFIN, European Commission

Partner:

Deutsches Institut für Wirtschaftsforschung Berlin e.V. (DIW Berlin)
Christian Dreger and Kirsten Lommatzsch