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Spatial Price Differences in China: Estimates and Implications

Author

Listed:
  • Loren BRANDT

    (University of Toronto)

  • Carsten A HOLZ

    (Hong Kong University of Science & Technology)

Abstract

Prices differ across space: from province to province, from rural (or urban) areas in one province to rural (or urban) areas in another province, and from rural to urban areas within one province. Systematic differences in prices across a range of goods and services in different localities imply regional differences in the costs of living. If high- income provinces also have high costs of living, and low-income provinces have low costs of living, the use of nominal income measures in explaining such economic outcomes as inequality can lead to misinterpretations. Income should be adjusted for costs of living. We are interested in the sign and magnitude of the adjustments needed, their changes over time, and their impact on economic outcomes in China. In this article, we construct a set of (rural, urban, total) provincial- level spatial price deflators for the years 1984-2002 that can be used to obtain provincial-level income measures adjusted for purchasing power. We provide illustrations of the significant effect of ignoring spatial price differences in the analysis of China's economy.

Suggested Citation

  • Loren BRANDT & Carsten A HOLZ, 2005. "Spatial Price Differences in China: Estimates and Implications," Development and Comp Systems 0504010, University Library of Munich, Germany.
  • Handle: RePEc:wpa:wuwpdc:0504010
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    References listed on IDEAS

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    JEL classification:

    • O18 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • D3 - Microeconomics - - Distribution

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