Preferences, Spatial Prices and Inequality
Much of the recent welfare analysis in the development literature has focussed attention on poverty. This is especially true for India which has seen a large proliferation in the poverty literature. This study departs from this tradition and focuses on inequality. It is based on the premise that as a country develops and experiences high growth rates, the focus should shift from poverty to inequality. Rising inequality leads to increasing marginalisation and greater social tension even while there may have been a general decline in poverty rates. The study examines the effect of prices on inequality. It does so in the heterogeneous country context of rural India during the recent period of economic reforms and beyond. It proposes a framework for calculating preference based “exact” price indices and shows its usefulness by consistently calculating spatial prices and regionally varying temporal prices that take into account both differences in preferences between states and changing preferences over time. The “exact” price indices are based on the recent “Exact Affine Stone Index” (EASI) demand system. This paper provides evidence on the usefulness of the proposed procedures by finding that the nature of inflation has been regressive during the first half (1999/2000 – 2004/5) and progressive during the second half (2004/5- 2009/10). The study also provides evidence based on panel estimation that suggests that while temporal price inflation has a positive effect on inequality, the effect of spatial prices on inequality is qualitatively quite different. The study also documents the positive role that rural developmental spending can play in reducing inequality. In contrast, an increase in non-farm labour productivity increases inequality. The sharp rise in inequality during the second half of our time period when India recorded high growth rates and falling poverty rates highlights the need for a closer look at inequality and its determinants as in this study.
|Date of creation:||Sep 2012|
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- Ankita Mishra & Ranjan Ray, 2009.
"Prices, Inequality and Poverty: Methodology and Indian Evidence,"
Monash Economics Working Papers
27-09, Monash University, Department of Economics.
- Ankita Mishra & Ranjan Ray, 2011. "Prices, Inequality, And Poverty: Methodology And Indian Evidence," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 57(3), pages 428-448, 09.
- Pendakur, Krishna, 2002.
"Taking prices seriously in the measurement of inequality,"
Journal of Public Economics,
Elsevier, vol. 86(1), pages 47-69, October.
- Pendakur, K., 1999. "Taking Prices Seriously in the Measurement of Inequality," Discussion Papers dp99-7, Department of Economics, Simon Fraser University.
- Paul Blacklow & Ranjan Ray, 2000.
"A Comparison of Income and Expenditure Inequality Estimates: The Australian Evidence, 1975-76 to 1993-94,"
Australian Economic Review,
The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 33(4), pages 317-329.
- Blacklow, P. & Ray, R., 1999. "A Comparison of Income and Expenditure Inequality Estimates: the Australian Evidence, 1975/76 to 1993/94," Papers 1999-05, Tasmania - Department of Economics.
- Mukesh Eswaran & Ashok Kotwal & Bharat Ramaswami & Wilima Wadhwa, 2007. "How does poverty decline? Evidence from India, 1983-1999," Indian Statistical Institute, Planning Unit, New Delhi Discussion Papers 07-05, Indian Statistical Institute, New Delhi, India.
- Arthur Lewbel & Krishna Pendakur, 2006.
"Tricks With Hicks: The EASI Demand System,"
Boston College Working Papers in Economics
651, Boston College Department of Economics, revised 26 Nov 2008.
- Ashok Kotwal & Bharat Ramaswami & Wilima Wadhwa, 2011.
"Economic Liberalization and Indian Economic Growth: What's the Evidence?,"
Journal of Economic Literature,
American Economic Association, vol. 49(4), pages 1152-1199, December.
- Ashkok Kotwal & Bharat Ramaswami & Wilima Wadhwa, 2011. "Economic liberalization and Indian economic growth: What's the evidence?," Indian Statistical Institute, Planning Unit, New Delhi Discussion Papers 11-13, Indian Statistical Institute, New Delhi, India.
- Richard Blundell & Ian Preston, 1998.
"Consumption Inequality and Income Uncertainty,"
The Quarterly Journal of Economics,
Oxford University Press, vol. 113(2), pages 603-640.
- 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.
- Aaron Nicholas & Ranjan Ray & Rebecca Valenzuela, 2008.
"Evaluating The Distributional Implications Of Price Movements: Methodology, Application And Australian Evidence,"
Monash Economics Working Papers
33/08, Monash University, Department of Economics.
- Aaron Nicholas & Ranjan Ray & Ma. Rebecca Valenzuela, 2010. "Evaluating the Distributional Implications of Price Movements: Methodology, Application and Australian Evidence," The Economic Record, The Economic Society of Australia, vol. 86(274), pages 352-366, 09.
- Linh Vu Hoang, 2009. "Estimation of Food Demand from Household Survey Data in Vietnam," Working Papers 12, Development and Policies Research Center (DEPOCEN), Vietnam.
- 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.
- 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.
- Muellbauer, John, 1974. "Prices and Inequality: The United Kingdom Experience," Economic Journal, Royal Economic Society, vol. 84(333), pages 32-55, March.
- Ravallion, Martin & Datt, Gaurav, 2002. "Why has economic growth been more pro-poor in some states of India than others?," Journal of Development Economics, Elsevier, vol. 68(2), pages 381-400, August.
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