Feature Stories Campus Events All Stories

Economics Research Examining Whether the World Is Really Flat

When you think about research into global economics, the cost of lipstick and toilet paper is hardly the first thing that comes to mind.

But that is precisely what Katie Boiles and Ian Sturdy, both economics majors and R. E. Lee Research Scholars at Washington and Lee University, have been researching this summer. Along with light bulbs, bottles of wine and toasters, they are looking at the prices of nearly 200 products around the world.

It’s all part of research that Michael Anderson, professor of economics at W&L, is pursuing in order to contribute to an ongoing conversation among economists as to whether the world is economically flat.

“There is this idea in the popular literature that there are no longer any frictions in the world market, and that markets are integrated,” he explained. “It really doesn’t matter anymore whether you are in Boston or Bangkok in order to compete in the American market. This was best represented by Thomas Friedman in his book ‘The World is Flat.'”

Anderson explained that if you can buy a toaster in Miami for the same price as in Manila, then that shows an economically flat world. But if the prices are significantly different, taking legitimate differences in price such as local taxes into account, then that shows friction between the markets.

There is, however, substantial literature that finds that frictions in markets are in fact enormously large. Seemingly innocuous borders, such as the one between Canada and the United States, provide all manner of market separations.
One purpose of Anderson’s research is to try to get some insight into whether that is true or not.

The team’s research also examines how well markets are integrating over time, and whether these market frictions are changing or constant.

To illustrate the importance of the research, Anderson said, “If we live in a world where distance and borders are very important, then that says something about the way the world is ordered, and that we really are separated from each other around the globe. Conversely, if we find the opposite, then we can argue that nations are no longer the important structures they used to be. So the kind of world we live in, how we understand ourselves, is going to be determined in a limited part, by the kind of research we are doing.”

That thinking appeals to Sturdy, a rising sophomore, who said he sees economics as one of the most interesting and pragmatic sides of how the world works and humans interact. “I didn’t have many strong preconceptions going into this research, but it has been a new experience. I was a bit surprised at how confusing the data could be.”

Boiles, a rising senior, said she was amazed at the scope of the data they were examining. “I didn’t fully realize that we would be working on data over a period of 20 years, nearly 200 goods and 120 cities. That’s millions of price comparisons that we are working with hands-on. I’ve never worked on something of that magnitude before.”

Their work hasn’t been without its frustration. The two students described working on data for a sizeable portion of the first few weeks only to discover that they had been sent the wrong information.

Anderson was sympathetic but pointed out that research is, first, a flash of inspiration but after that “it is long distance running in the rain.”

Despite that setback, Boiles said she really appreciated being a Robert E. Lee Research Scholar and gaining such valuable experience as an undergraduate. “It will be valuable to me in graduate school. I’m also hoping to use this data and the work we’ve done to contribute to my honors thesis next year. It’s going to make my task a lot easier because I’m now familiar with the work.”

Anderson said he also really appreciated the R. E. Lee program.

“It’s a joy to find students like Ian and Katie, who have obvious talents, and to see the productivity of my research increase by virtue of working with them. I’m very thankful because it would be hard for me to conduct research at this level without their help.”

R.E. Lee Research Scholars are part of the University’s undergraduate research program and is in its fifth decade of operation. It was founded in 1960 by an 1899 graduate. Students must be nominated by their professors to be R.E. Lee Research Scholars. It involves either assisting a professor in research or carrying out a student-planned project under the supervision of a professor.