2006/09/25 by Loren Brandt, Carsten A. Holz, Carsten A. Holz · 15 citations
Economics, Econometrics and Finance · #China #Cost of living #Demographic economics #Economic growth #Economics #Fiscal Policy and Economic Growth #Geography #Inequality #Purchasing power #Regional Economic and Spatial Analysis #Regional Economics and Spatial Analysis #Rural area
paper · pdf · doi:10.1086/505722
published in Economic Development and Cultural Change 55(1), 43-86 (University of Chicago Press)
openalex publication_date 2006/09/25 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/30
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 1984–2004 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.