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Spatial Price Differences in China: Estimates and Implications

Loren Brandt

University of Toronto - Department of Economics; Institute for the Study of Labor (IZA)

Carsten A. Holz


November 2005

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.

Number of Pages in PDF File: 44

Keywords: spatial deflators, inequality, income differences, regional absolute price levels, China

JEL Classification: D3 D31 C43 D63 O18 O53

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Date posted: April 7, 2005  

Suggested Citation

Brandt, Loren and Holz, Carsten A., Spatial Price Differences in China: Estimates and Implications (November 2005). Available at SSRN: http://ssrn.com/abstract=689224 or http://dx.doi.org/10.2139/ssrn.689224

Contact Information

Loren Brandt
University of Toronto - Department of Economics ( email )
150 St. George Street
Toronto, Ontario M5S 3G7
416-978-4442 (Phone)
416-978-6713 (Fax)
Institute for the Study of Labor (IZA) ( email )
P.O. Box 7240
Bonn, D-53072
Carsten A. Holz (Contact Author)
Independent ( email )
No Address Available
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