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Spatial Price Differences in China: Estimates and Implications

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  • Brandt, Loren
  • Holz, Carsten A

Abstract

Prices differ across space: from province to province, from rural (or urban) areas in one province to rural (or urban) areas in another province, and from rural to urban areas within one province. Systematic differences in prices across a range of goods and services in different localities imply regional differences in the costs of living. If high-income provinces also have high costs of living and low-income provinces have low costs of living, the use of nominal income measures in explaining such economic outcomes as inequality can lead to misinterpretations. Income should be adjusted for costs of living. We are interested in the sign and magnitude of the adjustments needed, their changes over time, and their impact on economic outcomes in China. In this article, we construct a set of (rural, urban, total) provincial-level spatial price deflators for the years 1984-2004 that can be used to obtain provincial-level income measures adjusted for purchasing power. We provide illustrations of the significant effect of ignoring spatial price differences in the analysis of China's economy.

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Bibliographic Info

Article provided by University of Chicago Press in its journal Economic Development and Cultural Change.

Volume (Year): 55 (2006)
Issue (Month): 1 (October)
Pages: 43-86

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Handle: RePEc:ucp:ecdecc:y:2006:v:55:i:1:p:43-86

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  1. Dennis Tao Yang, 1999. "Urban-Biased Policies and Rising Income Inequality in China," American Economic Review, American Economic Association, vol. 89(2), pages 306-310, May.
  2. Trescott, Paul B., 1985. "Incentives versus equality: What does China's recent experience show?," World Development, Elsevier, vol. 13(2), pages 205-217, February.
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  5. Ravi Kanbur & Xiaobo Zhang, 2005. "Fifty Years of Regional Inequality in China: a Journey Through Central Planning, Reform, and Openness," Review of Development Economics, Wiley Blackwell, vol. 9(1), pages 87-106, 02.
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  8. Xin Meng & Harry X Wu, 1995. "Household Income Determination and Regional Income Differential in Rural China," Chinese Economies Research Centre (CERC) Working Papers 1995-04, University of Adelaide, Chinese Economies Research Centre.
  9. X. Zhang & R. Kanbur, 2001. "What Difference Do Polarisation Measures Make? An Application to China," The Journal of Development Studies, Taylor and Francis Journals, vol. 37(3), pages 85-98.
  10. Chen, Shaohua & Ravallion, Martin, 1996. "Data in transition: Assessing rural living standards in Southern China," China Economic Review, Elsevier, vol. 7(1), pages 23-56.
  11. Angus Deaton & Alessandro Tarozzi, 2000. "Prices and poverty in India," Working Papers 213, Princeton University, Woodrow Wilson School of Public and International Affairs, Research Program in Development Studies..
  12. Hsiung, Bingyuang & Putterman, Louis, 1989. "Pre- and post-reform income distribution in a Chinese Commune: The case of dahe township in Hebei Province," Journal of Comparative Economics, Elsevier, vol. 13(3), pages 406-445, September.
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