Despite efforts to increase integration within Africa, product markets remain segmented between countries. This paper examines the magnitude of price gaps, known as the border effect, between Lesotho and South Africa using retail price data for 49 products in 35 cities over the period 2006–2009. Using a production–consumption pair approach, we estimate that crossing the border between South Africa and Lesotho is associated with an absolute product price gap that widened from 18% in 2006 to 24% in 2009. The structure of relative prices also differs markedly revealing a lack of convergence to a common set of internal relative prices. These results are robust to the choice of alternative production centres in South Africa and the imposition of distance thresholds between region pairs. The results indicate that the border between South Africa and Lesotho remains an impediment to trade flows and price competition, despite their joint membership in a customs union and monetary area.

This is an Open Access article distributed under the terms of the Creative Commons Attribution-NonCommercial-NoDerivs licence (http://creativecommons.org/licenses/by-nc-nd/4.0/), which permits non-commercial reproduction and distribution of the work, in any medium, provided the original work is not altered or transformed in any way, and that the work is properly cited. For commercial re-use, please contact [email protected]