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The Calculation of Rural Urban Food Price Differentials from Unit Values in Household Expenditure Surveys: A new procedure and comparison with existing methods

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  • Amita Majumder
  • Ranjan Ray
  • Kompal Sinha

Abstract

While national and international statistical agencies spend much resource on calculating purchasing power parity (PPP) between countries, relatively little attention is given to PPP calculations within countries. Yet, for large and heterogeneous countries, such as the US and India, intra country PPP is as important as cross-country PPP. This is particularly true of the rural urban divide in such countries where the idea that one unit of currency has the same purchasing power in both sectors is clearly false. This paper addresses this limitation by proposing a demand system based methodology for calculating rural urban PPP that incorporates rural urban differences in preferences and applies it to India. The methodology is compared with conventional procedures, such as the Laspeyre’s price index and the CPD model, and shown to have several advantages over them. The result on significant rural urban price difference in India underlines the need to extend the cross-country PPP calculations to incorporate spatial differences in large, heterogeneous countries with a diverse set of preferences and prices.

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Bibliographic Info

Paper provided by Monash University, Department of Economics in its series Monash Economics Working Papers with number 24-11.

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Length: 27 pages
Date of creation: Sep 2011
Date of revision:
Handle: RePEc:mos:moswps:2011-24

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Keywords: Rural Urban PPP; Unit Values; Quality Adjustment; CPD Model;

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References

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  1. Dipankor Coondoo & Amita Majumder & Somnath Chattopadhyay, 2011. "Estimating Spatial Consumer Price Indices Through Engel Curve Analysis," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 57(1), pages 138-155, 03.
  2. Koo, Jahyeong & Phillips, Keith R & Sigalla, Fiona D, 2000. "Measuring Regional Cost of Living," Journal of Business & Economic Statistics, American Statistical Association, vol. 18(1), pages 127-36, January.
  3. D. Coondoo & A. Majumder & R. Ray, 2004. "A Method of Calculating Regional Consumer Price Differentials with Illustrative Evidence from India," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 50(1), pages 51-68, 03.
  4. John Gibson & Scott Rozelle, 2005. "Prices and Unit Values in Poverty Measurement and Tax Reform Analysis," World Bank Economic Review, World Bank Group, vol. 19(1), pages 69-97.
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Cited by:
  1. Manisha Chakrabarty & Amita Majumder & Ranjan Ray, 2012. "Preferences, Spatial Prices and Inequality," Development Research Unit Working Paper Series 52-12, Monash University, Department of Economics.
  2. Amita Majumder & Ranjan Ray & Kompal Sinha, 2011. "Estimating Intra Country and Cross Country Purchasing Power Parities from Household Expenditure Data Using Single Equation and Complete Demand Systems Approach: India and Vietnam," Development Research Unit Working Paper Series 34-11, Monash University, Department of Economics.

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