The Size of the Border and Product Market Integration Between Lesotho and South Africa
A Production鈥揅onsumption Approach
Abstract
Despite efforts to increase integration within Africa, product markets remain segmented between countries. This paper examines the magnitude of price gaps, known as the border effect, between Lesotho and South Africa using retail price data for 49 products in 35 cities over the period 2006鈥�2009. Using a production鈥揷onsumption pair approach, we estimate that crossing the border between South Africa and Lesotho is associated with an absolute product price gap that widened from 18% in 2006 to 24% in 2009. The structure of relative prices also differs markedly revealing a lack of convergence to a common set of internal relative prices. These results are robust to the choice of alternative production centres in South Africa and the imposition of distance thresholds between region pairs. The results indicate that the border between South Africa and Lesotho remains an impediment to trade flows and price competition, despite their joint membership in a customs union and monetary area.
This work is part of the Private Enterprise Development in Low Income Countries (PEDL) programme
Citation
Nchake, M. A., L. Edwards and T. N. Kaya (2019) 鈥淭he Size of the Border and Product Market Integration Between Lesotho and South Africa: A Production鈥揅onsumption Approach鈥� Journal of African Economies, Volume 28, Issue 1, January 2019, Pages 70鈥�88 https://doi.org/10.1093/jae/ejy017