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Spatial Comparisons of Prices and Expenditure in a Heterogeneous Country: Methodology with Application to India

  • Amita Majumder
  • Ranjan Ray
  • Kompal Sinha

This 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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File URL: http://www.buseco.monash.edu.au/eco/research/papers/2012/1912spatialcomparisonsmajumderraysinha.pdf
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Paper provided by Monash University, Department of Economics in its series Monash Economics Working Papers with number 19-12.

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Length: 40 pages
Date of creation: Sep 2012
Date of revision:
Handle: RePEc:mos:moswps:2012-19
Contact details of provider: Postal: Department of Economics, Monash University, Victoria 3800, Australia
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Web page: http://www.buseco.monash.edu.au/eco/
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  1. Ingvild Almas, 2012. "International Income Inequality: Measuring PPP Bias by Estimating Engel Curves for Food," American Economic Review, American Economic Association, vol. 102(2), pages 1093-1117, April.
  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. 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. McKelvey, Christopher, 2011. "Price, unit value, and quality demanded," Journal of Development Economics, Elsevier, vol. 95(2), pages 157-169, July.
  5. Hill, Robert J., 2000. "Measuring substitution bias in international comparisons based on additive purchasing power parity methods," European Economic Review, Elsevier, vol. 44(1), pages 145-162, January.
  6. 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.
  7. Hill, Robert J., 2003. "Constructing price indexes across space and time: the case of the European Union," GGDC Research Memorandum 200362, Groningen Growth and Development Centre, University of Groningen.
  8. Lancaster, Geoffrey & Ray, Ranjan, 1998. "Comparison of Alternative Models of Household Equivalence Scales: The Australian Evidence on Unit Record Data," The Economic Record, The Economic Society of Australia, vol. 74(224), pages 1-14, March.
  9. 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.
  10. D. S. Prasada Rao & Alicia Rambaldi & Howard Doran, 2010. "Extrapolation Of Purchasing Power Parities Using Multiple Benchmarks And Auxiliary Information: A New Approach," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 56(s1), pages S59-S98, 06.
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