Research Unit for Statistical and Empirical Analysis in Social Sciences (Hi-Stat)

This study investigates the e(cid:11)ect of distance on price di(cid:11)erentials across regions. To identify the distance e(cid:11)ect, we need to incorporate producer heterogeneity and pricing-to-market behavior. Because geographic barriers alter the threshold levels of productivity to set a positive price across markets, the e(cid:11)ect of distance on price di(cid:11)erentials can be underestimated if heterogeneity and pricing to market are not accounted for. By incorporating these factors, empirical analysis using micro-level data reveals that the distance e(cid:11)ect is signi(cid:12)cantly large, suggesting that the price of geographic barriers is still high for regional transportation

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