Immigration and International Prices ∗

This paper considers the relation between immigration and prices for a large number of cities across the world over the period from 1990 to 2006. Immigration is shown to have a negative impact on international relative prices. A 10 percent increase in the share of immigrant workers in total employment decreases the prices of final goods and services by more than 2.5 percent. Our results suggest that relocation of this factor of production to relatively high wage destination countries exerts downward pressure on prices of non-tradeables and tradeables in these locations, resembling the role of price arbitrage for internationally traded final goods in relatively high price locations.