Spatial Comparisons of Prices and Expenditure in a Heterogeneous Country: Methodology with Application to India
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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- 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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- Ingvild Almås, 2010.
"International Income Inequality: Measuring PPP Bias by Estimating Engel Curves for Food,"
CESifo Working Paper Series
3247, CESifo Group Munich.
- 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.
- McKelvey, Christopher, 2011. "Price, unit value, and quality demanded," Journal of Development Economics, Elsevier, vol. 95(2), pages 157-169, July.
- 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.
- 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.
- 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.
- 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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