Disentangling the importance of international border effects. Some evidence from Portugal-Spain based on diesel retailers

This paper takes into consideration that, in the presence of cross-region heterogeneity in the distribution of within-region price differentials, the impact of borders can be much smaller than those suggested by the empirical strategy typically employed in the literature. By exploiting a large dataset on petrol stations, it is shown that the impact resulting from a standard method can be significant even from an imaginary border. This meaningless outcome is straight forwardly corrected by basing the work on a quasi-experimental design intended to disentangle the impacts of heterogeneity and border. An application to know to what extent the political boundary between Portugal and Spain affects price dispersion in terms of driving time is carried out. We found an irrelevant border effect for the intra-national regions, which contrasts with a significant although moderate impact for the international border. That is, the Portugal-Spain border is at most equivalent to an additional driving time between petrol stations of about five minutes.