Disparities in Incomes and Prices Internationally

Kenneth Clements, Grace Gao () and Thomas Simpson
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Thomas Simpson: Business School, University of Western Australia

No 12-01, Economics Discussion / Working Papers from The University of Western Australia, Department of Economics

Abstract: The dispersion of the distribution of relative prices in poor countries is substantially higher than that in the rich. As in 130+ countries relative prices are closely related to incomes, we develop a model that shows that the prices of luxuries (necessities) rise (fall) with income growth. This model provides a link between price dispersion and incomes that leads to several interesting concepts, including minimum-variance income and dispersion-equivalent income, the income needed to compensate for higher dispersion, which are illustrated with data from the International Comparison Program. The paper also contains an analysis of the welfare cost of higher dispersion in poorer countries.

Pages: 56 pages
Date: 2012
New Economics Papers: this item is included in nep-opm
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Persistent link: https://EconPapers.repec.org/RePEc:uwa:wpaper:12-01

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