Why are Services Cheaper in the Poor Countries?

Abstract

In their important work on international comparisons of national incomes and of comparative price structure, Kravis, Heston and Summers (i982, p. 8) have noted that 'services are much cheaper in the relative price structure of a typical poor country than in that of a rich country'. This phenonomen has been documented now fairly systematically by the data, gathered under their guiding hand, of the United Nations International Comparison (ICP) which covers 34 countries. Table I reproduced from their work (I982), and Fig. I based on rows 3 and II-13, indeed show this tendencyfor the relationship between relative service prices and real per capita GDP in this Kravis-Heston-Summers 34-country 6-group sample. The tendency is strongly evident except for the intermediate groups III and IV.