The Calculation of Rural Urban Food Price Differentials from Unit Values in Household Expenditure Surveys: A new procedure and comparison with existing methods

Amita Majumder, Ranjan Ray and Kompal Sinha

No 24-11, Monash Economics Working Papers from Monash University, Department of Economics

Abstract: While national and international statistical agencies spend much resource on calculating purchasing power parity (PPP) between countries, relatively little attention is given to PPP calculations within countries. Yet, for large and heterogeneous countries, such as the US and India, intra country PPP is as important as cross-country PPP. This is particularly true of the rural urban divide in such countries where the idea that one unit of currency has the same purchasing power in both sectors is clearly false. This paper addresses this limitation by proposing a demand system based methodology for calculating rural urban PPP that incorporates rural urban differences in preferences and applies it to India. The methodology is compared with conventional procedures, such as the Laspeyre’s price index and the CPD model, and shown to have several advantages over them. The result on significant rural urban price difference in India underlines the need to extend the cross-country PPP calculations to incorporate spatial differences in large, heterogeneous countries with a diverse set of preferences and prices.

Keywords: Rural Urban PPP; Unit Values; Quality Adjustment; CPD Model (search for similar items in EconPapers)
JEL-codes: C13 D12 E30 R10 R20 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2011-09
New Economics Papers: this item is included in nep-agr and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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