Lines in the Sand: Price Dispersion across Iraq’s Intranational Borders before, during, and after the Surge

Abstract

This paper tests the impact of a change in security commitment on market development in a country embroiled in low-intensity conflict. We analyze weekly price data for approximately 250 goods from 18 Iraqi cities between 2005 and 2008. Our paper suggests four empirical regularities associated with price dispersion and market development in postwar Iraq. First, the degree of intracountry price dispersion in Iraq is higher than that reported for a typical industrialized nation. Second, the degree of price dispersion decreased significantly during 2007, coincident with the change in U.S. security strategy known as the “surge.” Third, the economic impact of the surge is geographically uneven but loosely follows patterns of U.S. deployment—with price dispersion decreasing by roughly one-third in areas targeted during the surge but remaining relatively static in other areas. Finally, we find that internal ethnoreligious divisions have relatively modest effects on price dispersion.