Immigration and international prices: An initial assessment Marios Zachariadis ⁎ Department of Economics, University of Cyprus, 1678 Nicosia, Cyprus abstract article info Article history: Received 25 November 2009 Received in revised form 26 October 2010 Accepted 9 November 2010 Available online 18 November 2010 JEL classification: E31 J10 J61 Keywords: Immigration Prices Using prices from a number of cities across the world during 1990–2006, this paper shows that there exists a negative impact of immigration on prices. The estimated absolute elasticity of prices with respect to immigration is around 14% across specifications. © 2010 Elsevier B.V. All rights reserved. 1. Introduction Immigration is an important demographic force likely to have an important role in shaping economic outcomes. Its effect on the labor market and domestic wages has been the focus of a large body of work, typically finding a negative effect of immigration on wages (e.g. Borjas, 2003). By contrast, its role in determining prices of final goods has not been considered by more than a handful of papers. Lach (2007) utilizes Israeli data on individual product prices and immigration across Israeli cities and finds that immigration reduces prices through a demand-side channel of increased search and higher price elasticities for immigrants. Cortes (2008) uses prices and immigration data across U.S. cities to show that an increase in immigration reduces prices via a supply-side channel by reducing wages. The goal of this paper is to estimate the impact of immigration on prices for cities across the world during 1990–2006. In theory, we would expect several forces to be driving the relation between prices and immigration. First, there should be a positive effect on prices after an increase in overall demand due to immigration. Second, to the extent that immigrants are poorer than locals we would expect them to have higher search and substitut- ability parameters acting to negate any positive demand-side effects on prices as in Lach (2007). Third, consistent with Cortes (2008), one would expect immigrants to receive lower wages at given productiv- ity levels, partly because of a lower opportunity cost related also to subjectively perceived wage comparisons relative to the typically poorer home country. Thus, the overall impact of immigration on prices is an empirical issue. 2. Data We use price levels for 304 items across 140 cities in 90 countries for the period 1990 to 2006, assembled by the Economist Intelligence Unit (EIU). These items include over 100 distinct goods and services spanning the CPI, including items such us: Margarine 500 g in supermarket; Bananas 1 kg in mid-priced store; Coca-Cola 1 l in supermarket; and Fast food snack, hamburger, fries and drink, average. We use employed migrant population I nt into each country Economics Letters 110 (2011) 83–85 ⁎ Tel.: +357 22893712; fax: +357 22892432. E-mail address: zachariadis@ucy.ac.cy. Table 1 Country availability. Nation Cities Austria Vienna Ecuador Quito France Lyon, Paris Ireland Dublin Korea Seoul Malaysia Kuala Lumpur Spain Barcelona, Madrid Switzerland Geneva, Zurich Turkey Istanbul UK London, Manchester US Seventeen cities Note Venezuela Caracas Note: These are Atlanta, Boston, Chicago, Cleveland, Detroit, Honolulu, Houston, Lexington, Los Angeles, Miami, Minneapolis, New York, Pittsburgh, San Francisco, San Juan, Seattle, and Washington DC. 0165-1765/$ – see front matter © 2010 Elsevier B.V. All rights reserved. doi:10.1016/j.econlet.2010.11.017 Contents lists available at ScienceDirect Economics Letters journal homepage: www.elsevier.com/locate/ecolet