Measuring the spatial price differences in China with regional price parity methods

Abstract

AbstractThe measurement of prices has been an important field in economics, and a spatial price index is very useful in comparing the standards of living and well‐being across regions in a country. This paper intends to measure the regional price parities (RPPs) across different provincial areas in China with an urban sample of 140 goods and services in 2015 according to the framework of the International Comparison Program (ICP) methodology. The results show that the RPPs that were estimated with commonly used approaches, such as the Gini–Éltetö–Köves–Szulc (GEKS), Geary–Khamis (GK) and weighted country product dummy (WCPD), are only slightly different. The RPPs of three regions including Guangdong, Shanghai and Zhejiang are greater than 1 (with Beijing = 1), while the other 27 regions are all lower than 1, which represents price levels that are less than Beijing. In the extrapolation of the RPPs from 2000 to 2014, a significant descending trend is found for the standard deviation series of the RPPs over time that shows that the price differences across regions decreased during the extrapolating period. This finding provides evidence of a phenomenon of spatial price converging in China. Finally, a study on the deflation of provincial aggregates with the RPPs reveals that the spatial price adjustment will change the ranks or relative importance of different regions in the country. Especially, the measurement of income inequality proves that the Gini coefficients of provincial income deflated by the RPPGEKS are all lower than the Gini coefficients of unadjusted incomes.