Relative City Price Convergence in Pakistan: Empirical Evidence from Spatial GLS

The study estimates relative city price convergence using CPI data from July 2001 to June 2008 on 35 Pakistani cities. Two cities Lahore and Karachi are chosen to be the numeraire cities. The half life of relative city price shock has also been estimated. The study finds average half life of price shock to be less than 5 months but it varies from 1.3 to 68 months in the case of individual cities. The estimates of Spatial GLS are found to be lower than OLS which may imply that Spatial Correlations are important factor for the estimation of half life. Furthermore, the average half life of a price shock in Lahore is less than that of Karachi.