Spatial Comparisons of Prices and Expenditure in a Heterogeneous Country: Methodology with Application to India
AbstractThis study addresses two significant limitations in the literature on cross-country expenditure comparisons: (a) treatment of all countries, large and small, as single entities with no spatial differences inside the countries, and (b) use of Divisia price indices, rather than preference based “exact price” indices, in the expenditure comparisons. This paper proposes alternative preference consistent methods for estimating spatial price differences in a large heterogeneous country such as India. Unlike the conventional price indices, the use of demand systems based methods allows the incorporation of price induced substitution effects between items. The paper illustrates the usefulness of the methodology by using the “exact” spatial price indices, in conjunction with the inequality sensitive welfare measure due to Sen, to rank the Indian states and examine changes in ranking duirng one of the most significant periods in independent India. The results have methodological and empirical implications that extend much beyond India.
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Bibliographic InfoPaper provided by Monash University, Department of Economics in its series Monash Economics Working Papers with number 19-12.
Length: 40 pages
Date of creation: Sep 2012
Date of revision:
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Postal: Department of Economics, Monash University, Victoria 3800, Australia
Web page: http://www.buseco.monash.edu.au/eco/
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Find related papers by JEL classification:
- C18 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Methodolical Issues: General
- C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
- D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
- D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
- E21 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
- E64 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Incomes Policy; Price Policy
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-09-30 (All new papers)
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