SLI-Paper 2005:3

Economic integration and price differences on food products – a special focus on EU enlargements

With economic integration follows expectations of lower prices and narrowed price differences between member countries. In this report we study the development of food prices in the period 1990 to 2004. Prices on 46 food and beverage products are analysed in 26 major cities in the EU and Switzerland. Important actions towards an increased economic integration during this period include the introduction of a common currency and two enlargements of the union.

When we control for differences in vat rates, geographic distance and differences in service costs between cities, price differences are larger between countries than within countries despite the measures of an increased economic integration. Also, we do not find that the monetary union has had any effect on price differences. However, we do find that the EU membership has narrowed price differences between the majority of the new member states and the rest of the EU.