Spatial Price Differences and Inequality in the People's Republic of China: Housing Market Evidence

Asian Development Review 31:1

29 Pages Posted: 7 Apr 2016

See all articles by Chao Li

Chao Li

University of Waikato, Management School, Economics, Students

John Gibson

University of Waikato; Motu Economic and Public Policy Research

Date Written: March 28, 2014

Abstract

The large literature on regional inequality in the People’s Republic of China (PRC) is hampered by incomplete evidence on price dispersion across space, making it hard to distinguish real and nominal inequality. The two main methods used to calculate spatial deflators have been to price a national basket of goods and services across different regions in the country or else to estimate a food Engel curve and define the deflator as that needed for nominally similar households to have the same food budget shares in all regions. Neither approach is convincing with the data available. Moreover, a focus on tradable goods such as food may be misplaced because of the emerging literature on the rapid convergence of traded goods prices within the PRC that contrasts with earlier claims of fragmented internal markets. In a setting where traded goods prices converge rapidly, the main source of price dispersion across space should come from nontraded items, and especially from housing given the fixity of land. In this paper we use newly available data on dwelling sales in urban PRC to develop spatially-disaggregated indices of house prices which are then used as spatial deflators for both provinces and core urban districts. These new deflators complement existing approaches that have relied more on traded goods prices and are used to re-examine the evidence on the level of regional inequality. Around one-quarter of the apparent spatial inequality disappears once account is taken of cost-of-living differences.

Keywords: housing, inequality, prices, spatial, People’s Republic of China

JEL Classification: E31, O15, R31

Suggested Citation

Li, Chao and Gibson, John, Spatial Price Differences and Inequality in the People's Republic of China: Housing Market Evidence (March 28, 2014). Asian Development Review 31:1. Available at SSRN: https://ssrn.com/abstract=2758952

Chao Li (Contact Author)

University of Waikato, Management School, Economics, Students ( email )

Hamilton
New Zealand

John Gibson

University of Waikato ( email )

Te Raupapa
Private Bag 3105
Hamilton, 3240
New Zealand

Motu Economic and Public Policy Research

19 Milne Terrace
Island Bay
Wellington, 6002
New Zealand

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