Regional Price Differences in Urban China 1986-2001: Estimation and Implication

60 Pages Posted: 4 Aug 2008

See all articles by Cathy Honge Gong

Cathy Honge Gong

affiliation not provided to SSRN

Xin Meng

Australian National University; IZA Institute of Labor Economics

Abstract

Despite the intensive efforts made by economists to examine regional income inequality in China, limited attention has been paid to disentangle the contribution of regional price differentials. This paper examines regional price differential in urban China over the period 1986 to 2001. Spatial Price Index (SPI) is normally calculated using the Basket Cost Method, which defines a national basket and measures price variation of this common basket across different regions. The weakness of this method is that it arbitrarily assumes consumers' preferences and has a strong reliance on good regional level price data, which are often not available. This paper adopts the Engel's curve approach to estimate a Spatial Price Index for different provinces. The SPI obtained from the Engel's curve approach indicates larger regional price variations than those obtained from the Basket Cost method. Further, regional price variations in urban China increased significantly during the late 1980s to early 1990s, stabilized at a relatively high level during the mid to end 1990s. Adjusting for the regional price variations our finding suggests that regional income inequality increased the most between the late 1980s and early 1990s, and stabilized in the mid 1990s, which contradicts previous findings using unadjusted income.

Keywords: spatial price index, Engel's curve, income inequality, China

JEL Classification: C43, E31, P36, D12

Suggested Citation

Gong, Cathy Honge and Meng, Xin, Regional Price Differences in Urban China 1986-2001: Estimation and Implication. IZA Discussion Paper No. 3621. Available at SSRN: https://ssrn.com/abstract=1198691 or http://dx.doi.org/10.1111/j.0042-7092.2007.00700.x

Cathy Honge Gong (Contact Author)

affiliation not provided to SSRN

Xin Meng

Australian National University ( email )

Research School of Economics
College of Business and Economics
Canberra ACT 0200
Australia
+61 26249 3102 (Phone)

IZA Institute of Labor Economics

Schaumburg-Lippe-Str. 7 / 9
Bonn, D-53072
Germany

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