Intra-regional trade has most clearly defined Asia’s growing integration over the past
decade. With lower barriers to trade, the markets for goods and services have become more
integrated across many national borders. When the markets are integrated, arbitrage tends
to assure that the prices of similar goods do not deviate from one another too much for too
long (in the extreme case of a perfectly integrated market, the law of one price requires that
the prices of identical goods be the same, adjusted for transportation, information and other
transactions costs). Among the few studies that have analyzed the impact of increasing
trade integration on price co-movement, Shin and Sohn (2006) showed that price correlation
was positively associated with bilateral trade intensity among nine Asian economies
during 1971–2003.
Intra-regional trade has most clearly defined Asia’s growing integration over the pastdecade. With lower barriers to trade, the markets for goods and services have become moreintegrated across many national borders. When the markets are integrated, arbitrage tendsto assure that the prices of similar goods do not deviate from one another too much for toolong (in the extreme case of a perfectly integrated market, the law of one price requires thatthe prices of identical goods be the same, adjusted for transportation, information and othertransactions costs). Among the few studies that have analyzed the impact of increasingtrade integration on price co-movement, Shin and Sohn (2006) showed that price correlationwas positively associated with bilateral trade intensity among nine Asian economiesduring 1971–2003.
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