Regional price levels in the Czech Republic – preliminary results and application

Regional price levels should play important role in any regional analysis as plenty of indicators must be used in relation to the regional price levels and reflect the purchasing power in a particular region. The common approach in contemporary regional analyses is to use regional indicators converted in PPS. Although the PPS conversion is reliable and valid at the country level it is most likely to be inappropriate for the regional (NUTS 2 and NUTS 3) levels. The main reason is that regional PPS, which analysts usually get from EUROSTAT, actually do not reflect regional prices at all. The current methodology uses the same price level based on prices in capital city for all the regions in the country. This brings a lot of problems and empirical but also theoretical bias. In this paper we show some preliminary results of regional price levels calculation in Czech NUTS 3 regions and some economic implications which calculation of regional price levels brings. We conclude that incorporation proper regional price levels leads to quite different results in economic performance of the regions. Moreover we have to remember that the Czech Republic is quite small and homogenous country and that the differences could be even bigger in larger EU countries.