Author Name | MORI Tomoya (Faculty Fellow, RIETI) / Jens WRONA (University Duisburg-Essen) |
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Creation Date/NO. | June 2021 21-E-047 |
Research Project | Agglomeration-based Framework for Empirical and Policy Analyses of Regional Economies |
Download / Links | |
Notes |
First Draft: June 2021 |
Abstract
To test the localized tastes hypothesis, we use historical dialect similarity as an instrument to predict the persistent component of regional taste differences. Analyzing wholesale markets for fruits and vegetables in Japan, we find that predicted taste differences have a strong, statistically significant effect, explaining approximately 9% of the mean volatility in law-of-one-price deviations. Our findings are robust across extensive validity checks, which scrutinize and relax our exclusion restriction, distinguishing between various sources of endogeneity, and confirm our baseline results based on alternative instruments, which exploit exogenous differences in agro-climatic endowments.