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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

Author

Listed:
  • 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.

Suggested Citation

  • Amita Majumder & Ranjan Ray & Kompal Sinha, 2011. "The Calculation of Rural Urban Food Price Differentials from Unit Values in Household Expenditure Surveys: A new procedure and comparison with existing methods," Monash Economics Working Papers 24-11, Monash University, Department of Economics.
  • Handle: RePEc:mos:moswps:2011-24
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    File URL: http://www.buseco.monash.edu.au/eco/research/papers/2011/2411calculationruralmajumderraysinha.pdf
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    References listed on IDEAS

    as
    1. Koo, Jahyeong & Phillips, Keith R & Sigalla, Fiona D, 2000. "Measuring Regional Cost of Living," Journal of Business & Economic Statistics, American Statistical Association, pages 127-136.
    2. 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, pages 51-68.
    3. 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, pages 138-155.
    4. John Gibson & Scott Rozelle, 2005. "Prices and Unit Values in Poverty Measurement and Tax Reform Analysis," World Bank Economic Review, World Bank Group, pages 69-97.
    5. James Banks & Richard Blundell & Arthur Lewbel, 1997. "Quadratic Engel Curves And Consumer Demand," The Review of Economics and Statistics, MIT Press, pages 527-539.
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    Citations

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    Cited by:

    1. Manisha Chakrabarty & Amita Majumder & Ranjan Ray, 2015. "Preferences, Spatial Prices and Inequality," Journal of Development Studies, Taylor & Francis Journals, vol. 51(11), pages 1488-1501, November.
    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," Monash Economics Working Papers 34-11, Monash University, Department of Economics.
    3. Amita Majumder & Ranjan Ray, 2015. "Estimates of Spatial Prices in India and their Sensitivity to Alternative Estimation Methods and Choice of Items," Monash Economics Working Papers 11-15, Monash University, Department of Economics.

    More about this item

    Keywords

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

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • R10 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General
    • R20 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - General

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