Globalisation and sticky prices: ‘con’ or conundrum

Authors

Kevin Albertson

Abstract

With reference to a case study which illustrates the existence of segmented markets and international price discrimination, this paper develops a theoretical model of comparative advantage in which domestic prices may be sticky. We show, when domestic prices do not converge to world prices, the effects of international trade upon domestic welfare are ambiguous. In particular, for a nation with no absolute advantage, specialising in comparatively advantageous production will reduce welfare where prices are sticky. This finding contrasts with the general view that pursuit of comparative advantage will always increase welfare.

Publication link

http://www.paecon.net/PAEReview/issue73/Albertson73.pdf

Albertson, K., Simister, J.G. and Syme, T. (2015) Globalisation and sticky prices: ‘con’ or conundrum?, Real-World Economics Review, 73, 93-98

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