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What is the Price of Tea in China? Towards the Relative Cost of Living in Chinese and U.S. Cities

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Listed:
  • Robert C. Feenstra
  • Mingzhi Xu
  • Alexis Antoniades

Abstract

We examine the price and variety of products at the barcode level in cities within China and the United States. In both countries, there is a greater variety of products in larger cities. But in China, unlike the United States, the prices of products tend to be lower in larger cities. We attribute the lower prices to a pro-competitive effect, whereby large cities attract more firms which leads to lower markups and prices. Combining the effect of greater variety and lower prices, it follows that the cost of living for grocery-store products in China is lower in larger cities. We further compare the cost-of-living indexes for particular product categories between China and the United States. In product categories with a significant presence of U.S. brands in the Chinese market, the availability of additional Chinese brands leads to greater variety than in the United States, and therefore lower Chinese price indexes for that reason. In product categories with much less presence of U.S. brands in the Chinese market, however, the observed prices differences between the countries (usually lower prices in China) are partially or fully offset by the variety differences (less variety in China), so that the cost of living in China is not as low as the price differences suggest, especially in smaller cities.

Suggested Citation

  • Robert C. Feenstra & Mingzhi Xu & Alexis Antoniades, 2017. "What is the Price of Tea in China? Towards the Relative Cost of Living in Chinese and U.S. Cities," NBER Working Papers 23161, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:23161
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    References listed on IDEAS

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    1. Colin J. Hottman & Stephen J. Redding & David E. Weinstein, 2016. "Quantifying the Sources of Firm Heterogeneity," The Quarterly Journal of Economics, Oxford University Press, vol. 131(3), pages 1291-1364.
    2. Jessie Handbury & David E. Weinstein, 2015. "Goods Prices and Availability in Cities," Review of Economic Studies, Oxford University Press, vol. 82(1), pages 258-296.
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    More about this item

    JEL classification:

    • E01 - Macroeconomics and Monetary Economics - - General - - - Measurement and Data on National Income and Product Accounts and Wealth; Environmental Accounts
    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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