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Frontiers of Economics in China

ISSN 1673-3444

ISSN 1673-3568(Online)

CN 11-5744/F

Postal Subscription Code 80-978

Front Econ Chin    2012, Vol. 7 Issue (1) : 94-121    https://doi.org/10.3868/s060-001-012-0005-7
research-article |
Accounting for the "Subnational Penn Effect"—A General Theory of Regional and National Price Levels
Xiang Tang()
School of Economics, Peking University, Beijing 100871, China
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Abstract

As an extension of the neoclassical urban systems theory (Henderson, 1974), we develop a general theory of regional (inter-city) price dispersion which also explains the “subnational Penn effect,” i.e., cross-city correlations among population size, prices, real income and human capital stock. The model is also a theory of international price dispersion that is observationally equivalent to and more appealing than the Balassa-Samuelson theory, implying that the (international) Penn effect may simply be an aggregate result of the “subnational Penn effect.” Furthermore, it shows that, contrary to the popular view, economic integration can increase as well as decrease spatial price variation.

Keywords regional price dispersion      Penn effect      Balassa-Samuelson      urban systems     
Corresponding Authors: Xiang Tang,Email:tangxiang_pku@163.com   
Issue Date: 05 March 2012
 Cite this article:   
Xiang Tang. Accounting for the "Subnational Penn Effect"—A General Theory of Regional and National Price Levels[J]. Front Econ Chin, 2012, 7(1): 94-121.
 URL:  
http://academic.hep.com.cn/fec/EN/10.3868/s060-001-012-0005-7
http://academic.hep.com.cn/fec/EN/Y2012/V7/I1/94
[1] Huayi Yu, Xiang Tang, Rui Wu. The Subnational Penn Effect: Evidence from China[J]. Front Econ Chin, 2012, 7(4): 627-650.
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