European product market integration after the euro

Using a detailed data set of prices of consumer goods in European cities from 1990 to Spring 2003, we investigate the question of whether the introduction of the euro in January 1999 increased integration of consumer markets as reflected by consumer prices. In fact, we find no tendency for prices to converge after January 1999. This finding holds even when we control for a number of factors that might affect price dispersion. On the other hand, we find that there has been a significant reduction in price dispersion throughout the decade of the 1990s, suggesting that efforts to reduce economic barriers initiated early in the decade may have in fact had the effect of significantly increasing the integration of consumer markets. — Charles Engel and John H. Rogers