Spatial price differences within large countries
National and international statistical systems are strangely reticent on differences in price levels within countries. Nations as diverse as India and the United States publish inflation rates for different areas, but provide nothing that allows comparisons of price levels across places at a moment of time. The International Comparison Project, which at each round collects prices and calculates price indexes for most of the countries of the world, publishes nothing on within country differences, and in some important cases including China, Brazil, and India, rural prices are either not collected or are underrepresented, which potentially distorts the comparison between large and small countries, Deaton and Heston (2010). Yet spatial price indexes are required if we are to compare real incomes across areas, and both national and global poverty estimates require intra- as well as inter-national price indexes. There are also good grounds for suspecting that price levels differ across regions. Several large Indian states are larger than most countries, and consumption patterns are sharply different across the subcontinent. And for the same reasons that we expect price levels to be lower in poorer countries the Balassa-Samuelson theorem we would expect prices to be lower in poorer areas within countries, at least if people are not completely mobile across space.
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