Working Paper: Regional Prices and Incomes

This paper argues that regional disparities in Britain are exaggerated. We show that official figures overstate differences in regional output, productivity and income. This effect comes about because official regional statistics in Britain are compiled on a nominal basis – i.e. they do not take into account differences in regional price levels. We develop measures of relative regional prices to show that the impact is substantial: regional differences in household income are almost halved after taking into account inter-regional price differences. As a result, academics need to critically reappraise our approach to regional disparities. The paper argues that future research needs to take into account price variations across regions in Britain and internationally. Since data on regional prices are scarce in many countries, policymakers need to consider these methodological issues when designing regional assistance and redistribution measures