Disparities in Incomes and Prices Internationally
AbstractThe dispersion of the distribution of relative prices in poor countries is substantially higher than that in the rich. As in 130+ countries relative prices are closely related to incomes, we develop a model that shows that the prices of luxuries (necessities) rise (fall) with income growth. This model provides a link between price dispersion and incomes that leads to several interesting concepts, including minimum-variance income and dispersion-equivalent income, the income needed to compensate for higher dispersion, which are illustrated with data from the International Comparison Program. The paper also contains an analysis of the welfare cost of higher dispersion in poorer countries.
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Bibliographic InfoPaper provided by The University of Western Australia, Department of Economics in its series Economics Discussion / Working Papers with number 12-01.
Length: 56 pages
Date of creation: 2012
Date of revision:
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