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Spatial Price Differences in China: Estimates and Implications

  • Loren BRANDT

    (University of Toronto)

  • Carsten A HOLZ

    (Hong Kong University of Science & Technology)

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.

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File URL: http://econwpa.repec.org/eps/dev/papers/0504/0504010.pdf
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Paper provided by EconWPA in its series Development and Comp Systems with number 0504010.

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Length: 42 pages
Date of creation: 21 Apr 2005
Date of revision:
Handle: RePEc:wpa:wuwpdc:0504010
Note: Type of Document - pdf; pages: 42
Contact details of provider: Web page: http://econwpa.repec.org

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  1. Chen, Shaohua & Ravallion, Martin, 1996. "Data in transition: Assessing rural living standards in Southern China," China Economic Review, Elsevier, vol. 7(1), pages 23-56.
  2. Angus Deaton & Alessandro Tarozzi, 2000. "Prices and poverty in India," Working Papers 213, Princeton University, Woodrow Wilson School of Public and International Affairs, Research Program in Development Studies..
  3. Ravi Kanbur & Xiaobo Zhang, 2005. "Fifty Years of Regional Inequality in China: a Journey Through Central Planning, Reform, and Openness," Review of Development Economics, Wiley Blackwell, vol. 9(1), pages 87-106, 02.
  4. Kravis, Irving B & Lipsey, Robert E, 1988. "National Price Levels and the Prices of Tradables and Nontradables," American Economic Review, American Economic Association, vol. 78(2), pages 474-78, May.
  5. Hsiung, Bingyuang & Putterman, Louis, 1989. "Pre- and post-reform income distribution in a Chinese Commune: The case of dahe township in Hebei Province," Journal of Comparative Economics, Elsevier, vol. 13(3), pages 406-445, September.
  6. Wei, Shang-Jin & Wu, Yi, 2001. "Globalization and Inequality: Evidence from within China," CEPR Discussion Papers 3088, C.E.P.R. Discussion Papers.
  7. X. Zhang & R. Kanbur, 2001. "What Difference Do Polarisation Measures Make? An Application to China," Journal of Development Studies, Taylor & Francis Journals, vol. 37(3), pages 85-98.
  8. Trescott, Paul B., 1985. "Incentives versus equality: What does China's recent experience show?," World Development, Elsevier, vol. 13(2), pages 205-217, February.
  9. Knight, J. & Lina, S., 1990. "The Determinants Of Urban Income Inequality In China," Economics Series Working Papers 9991, University of Oxford, Department of Economics.
  10. Adelman, Irma & Sunding, David, 1987. "Economic policy and income distribution in China," Journal of Comparative Economics, Elsevier, vol. 11(3), pages 444-461, September.
  11. meng, xin & wu, harry, 1994. "Household Income Determination and Regional Income Differential in Rural China," MPRA Paper 1345, University Library of Munich, Germany.
  12. Dennis Tao Yang, 1999. "Urban-Biased Policies and Rising Income Inequality in China," American Economic Review, American Economic Association, vol. 89(2), pages 306-310, May.
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