Price level convergence across regions in Turkey

This paper attempts to examine whether there is price level convergence across
regions in Turkey by using first and second generation unit root tests. Our results
show that the conclusions based on these tests are not clear cut and suggest that panel
methods must be used very carefully for testing unit roots in panels of price data.
Moreover, we produce half life estimates to examine the speed of the convergence of
price levels. In conformity with the previous studies using data on emerging markets
we find price level convergence of a slower rate compared to developed economies.
We speculate that differences in market structures between developed and developing
countries may be the underlying reason. Finally, we investigate distance as a possible
explanatory factor that could account for the rate of price level convergence. Our
findings suggest that distance does not seem to be an important determinant of the
regional price level convergence in Turkey, which implies the price effects of distance
cannot be fully captured by simple intercity measures.