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Improved Modelling of Spatial Cost of Living Differences in Developing Countries: A Comparison of Expert Knowledge and Traditional Price Surveys

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Most developing countries lack spatially disaggregated price data, despite the importance of spatial transactions costs in these settings. We experimented in Vietnam with a new way of obtaining disaggregated price data, using local expert knowledge to derive the mean and variance for prices of 64 items in over 1000 communities. We use these prices to calculate regional cost-of-living indexes. These provide a better approximation to benchmark multilateral price indexes calculated from traditional market price surveys than do two no-price methods, based on using food Engel curves to derive deflators and based on unit values (survey group expenditure over group quantity).

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  • John Gibson & Trinh Le, 2018. "Improved Modelling of Spatial Cost of Living Differences in Developing Countries: A Comparison of Expert Knowledge and Traditional Price Surveys," Working Papers in Economics 18/08, University of Waikato.
  • Handle: RePEc:wai:econwp:18/08
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    1. John Gibson, 2016. "Poverty Measurement: We Know Less than Policy Makers Realize," Asia and the Pacific Policy Studies, Wiley Blackwell, vol. 3(3), pages 430-442, September.
    2. L. ALAN WINTERS & NEIL McCULLOCH & ANDREW McKAY, 2015. "Trade Liberalization and Poverty: The Evidence So Far," World Scientific Book Chapters, in: Non-Tariff Barriers, Regionalism and Poverty Essays in Applied International Trade Analysis, chapter 14, pages 271-314, World Scientific Publishing Co. Pte. Ltd..
    3. D. S. Prasada Rao, 2005. "On The Equivalence Of Weighted Country‐Product‐Dummy (Cpd) Method And The Rao‐System For Multilateral Price Comparisons," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 51(4), pages 571-580, December.
    4. Deaton, Angus, 1988. "Quality, Quantity, and Spatial Variation of Price," American Economic Review, American Economic Association, vol. 78(3), pages 418-430, June.
    5. Gibson, John & Kim, Bonggeun, 2013. "Quality, Quantity, and Nutritional Impacts of Rice Price Changes in Vietnam," World Development, Elsevier, vol. 43(C), pages 329-340.
    6. 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.
    7. Erwin Diewert, 2005. "Weighted Country Product Dummy Variable Regressions And Index Number Formulae," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 51(4), pages 561-570, December.
    8. John Gibson & Trinh Le & Bonggeun Kim, 2017. "Prices, Engel Curves, and Time-Space Deflation: Impacts on Poverty and Inequality in Vietnam," World Bank Economic Review, World Bank Group, vol. 31(2), pages 504-530.
    9. Matthijs van Veelen & Roy van der Weide, 2008. "A Note on Different Approaches to Index Number Theory," American Economic Review, American Economic Association, vol. 98(4), pages 1722-1730, September.
    10. Gong, Cathy Honge & Meng, Xin, 2008. "Regional Price Differences in Urban China 1986-2001: Estimation and Implication," IZA Discussion Papers 3621, Institute of Labor Economics (IZA).
    11. World Bank, . "Well Begun, Not Yet Done : Vietnam's Remarkable Progress on Poverty Reduction and the Emerging Challenges," World Bank Other Operational Studies, The World Bank, number 12326.
    12. John Gibson & Bonggeun Kim, 2018. "Economies of scale, bulk discounts, and liquidity constraints: comparing unit value and transaction level evidence in a poor country," Review of Economics of the Household, Springer, vol. 16(1), pages 21-39, March.
    13. Gibson, John & Kim, Bonggeun, 2015. "Hicksian separability does not hold over space: Implications for the design of household surveys and price questionnaires," Journal of Development Economics, Elsevier, vol. 114(C), pages 34-40.
    14. Borcherding, Thomas E & Silberberg, Eugene, 1978. "Shipping the Good Apples Out: The Alchian and Allen Theorem Reconsidered," Journal of Political Economy, University of Chicago Press, vol. 86(1), pages 131-138, February.
    15. Breuer, Claus C. & von der Lippe, Peter, 2011. "Problems of operationalizing the concept of a cost-of-living index," MPRA Paper 32902, University Library of Munich, Germany.
    16. Bruce W. Hamilton, 2001. "Using Engel's Law to Estimate CPI Bias," American Economic Review, American Economic Association, vol. 91(3), pages 619-630, June.
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    Cited by:

    1. Chen,Xiaomeng & Mungai,Rose & Nakamura,Shohei & Pearson,Thomas Patrick & Wambile,Ayago Esmubancha & Yoshida,Nobuo, 2020. "How Useful is CPI Price Data for Spatial Price Adjustment in Poverty Measurement? : A Case from Ghana," Policy Research Working Paper Series 9388, The World Bank.

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    More about this item

    Keywords

    expert knowledge; inequality; prices; regional cost-of-living;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration

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