The Price of Remoteness: Product Availability and Local Cost of Living in Ethiopia

Abstract

This paper uses the microdata underlying the Ethiopian CPI to examine the spatial dispersion in local prices and availability of 400 items across more than 100 cities. We first show that remote cities face higher prices for individual products and have access to fewer products. All else equal, large cities also face higher individual prices but enjoy access to a wider set of products. To assess the welfare implications of these micro patterns, we then examine the impact of remoteness and population size on aggregate cost-of-living indexes that account for product availability. We find the cost of living is higher in remote areas, but not systematically related to population size. We then show spatial differences in the cost of living are a significant determinant of migration flows across Ethiopian regions. The impact of cost of living mainly channels through spatial differences in product availability.