An assessment of the performance of a spatial Engel curve methodology and its implication in real inequality

Abstract

We provide an assessment of the performance of an Engel curve methodology for estimating spatial price indices. We use a unique spatial price data and two conventional price index computation methods, binary Tornqvist and weighted country product dummy method for an ideal assessment of a spatial Engel curve. Poor performance of spatial Engel curve method for estimating spatial price indices implies a strong need for collecting direct spatial price data for calculating spatial price indices. We also provide some implications of a precise measurement of spatial price indices in implementing real inequality and poverty related policies.