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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

  • Amita Majumder
  • Ranjan Ray
  • Kompal Sinha

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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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
Contact details of provider: Postal: Department of Economics, Monash University, Victoria 3800, Australia
Phone: +61-3-9905-2493
Fax: +61-3-9905-5476
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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. 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.
  3. Jahyeong Koo & Keith Phillips & Fiona Sigalla, 1997. "Measuring regional cost of living," Working Papers 9713, Federal Reserve Bank of Dallas.
  4. James Banks & Richard Blundell & Arthur Lewbel, 1997. "Quadratic Engel Curves And Consumer Demand," The Review of Economics and Statistics, MIT Press, vol. 79(4), pages 527-539, November.
  5. 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.
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