It is conventional wisdom that richer countries have a higher price level than poorer countries. This paper provides evidence that the price-income relationship is non-linear and that it turns negative, or at best flat, in low income countries. The result is robust along both cross-section and time-series dimensions. Additional robustness checks show that biases in PPP estimation and measurement error in low-income countries do not drive the result.

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Fadi Hassan

June 2011     Paper Number CEPDP1056

Download PDF - The Penn-Belassa-Samuelson Effect in Developing Countries: Price and Income Revisited

This CEP discussion paper is published under the centre's programme.