Is living in African cities expensive?

ABSTRACT

Although several studies have examined why overall price levels are higher in richer countries, little is known about whether there is a similar relationship at the urban and city level across countries. This paper compares the price levels of cities in Sub-Saharan Africa with those of other regions by analyzing price information collected for the purpose of calculating official purchasing power parities. The approach of the paper is to readjust the calculated price levels from national to urban levels, using known price-level ratios between those areas. The results indicate that African cities are relatively more expensive, despite having lower income levels. The price levels of goods and services consumed by households are 25 to 28 percent higher in Sub-Saharan Africa than in other low- and middle-income countries, relative to their income levels. Such high costs of living could constrain livelihood of low-income urban residents, as well as the development of Africa’s urban economies.

KEYWORDS:

• Purchasing power parity
• price level
• urbanization
• International Comparison Program
• Sub-Saharan Africa

JEL CLASSIFICATION:

• E31
• O47
• R32

Acknowledgement

The authors would like to thank Andrew Dabalen and participants at the 2016 Annual Bank Conference on Development Economics for providing valuable comments. This study has been supported by financial contributions from UK-Aid through the Multi-donor Trust Fund on Sustainable Urbanization at the World Bank.

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ ‘Africa’ refers to Sub-Saharan Africa in this paper.

² See African Development Bank (2012, 4) for details.

³ PLIs for the following Asian countries were adjusted based on the capital city-to-national price level ratio in the Asian Development Bank (2013): Bangladesh, Bhutan, Cambodia, China, India, Indonesia, Lao PDR, Malaysia, Mongolia, Nepal, Pakistan, Philippines, Sri Lanka, Thailand, and Vietnam.

⁴ We calculate GVA per capita based on the Global Cities Historic Database (Oxford Economics 2015). The data miss the following 10 out of 78 economies selected in this paper: Bahrain, Bhutan, Brunei Darussalam, Djibouti, Guinea-Bissau, Equatorial Guinea, Liberia, Mauritania, Mauritius, and Swaziland.

⁵ The estimation results do not substantially change when the following variables are additionally included: household size (and its squared term) and the log of employment rate at the city level.

⁶ In its broadest category in the ICP data, the PLI of housing includes not only household expenditure on actual and imputed housing rent, but also maintenance and repair of the dwelling and utilities. We focus on only PLI for housing rent in the present paper.

Additional information

Funding

This work was supported by financial contributions from UK-Aid through the Multi-donor Trust Fund on Sustainable Urbanization at the World Bank.