Spatial Price Differences and Inequality in China: Housing Market Evidence

Chao Li () and John Gibson

Working Papers in Economics from University of Waikato

Abstract: The large literature on regional inequality in China 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 China’s different regions 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 in China. Moreover, a focus on tradable goods like food may be misplaced because of the emerging literature on the rapid convergence of traded goods prices within China 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 non-traded items, and especially from housing given the fixity of land. In this paper we use newly available data on dwelling sales in urban China 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; China (search for similar items in EconPapers)
JEL-codes: E31 O15 R31 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2013-03-15
New Economics Papers: this item is included in nep-cna, nep-geo, nep-ltv, nep-mac, nep-tra and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:wai:econwp:13/06

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