differentials between PLs accurately reflect regional price differences for goods in the CBN basket. Based on our assessment this does not appear to be the case.

We began by analyzing price differences between urban Maputo and rural N-CD using a Paasche index<sup>20</sup> constructed based on survey prices, which indicates a differential of 18 percent; a Paashe index based on SIMA<sup>21</sup> prices (which does not differentiate between rural and urban Maputo) produces a 30 percent differential. Similar calculations performed elsewhere (Sohnesen, 2011) put the price-index ratio between 5 and 20 percent.22 As a further robustness check, in computing the Paasche indexes we used only those observations that were 20 percent below or above the PL, in order to see whether the differential increased the closer we moved to the PL. The Paasche index based on both food and nonfood items from the household survey registers a differential of 30 percent provinces; based only on food the differential is just 5 percent, and the Paasche index based on SIMA prices produces a differential of 16 percent. Similar results are obtained when only observations below the 55th percentile<sup>23</sup> are used. In all cases, the observed price differentials are dwarfed by the vast differences in regional poverty lines.

The rural areas of Maputo and Nampula are more directly comparable, yet here as well the considerable PL spread (73 percent) is not justified by any similar difference in prices. Sohnesen’s simulation indicates a price differential of between 31 and 40 percent, while our deflator (whether based on survey prices or SIMA prices) indicates little or no difference between the two areas. As in the previous case, we compute the Paasche index ‘for the poor’, and here the differences are minimal: 13 percent for the food and non-food index, 20 percent when using only food items, and a negative differential of 2 percent when using SIMA prices.

To summarize, these findings suggest that the spatial distribution of prices ostensibly reflected in the official PLs is highly questionable, and does not appear to represent the actual prices faced by the poor. Since poverty headcounts are calculated using these PL’s, our results suggest that the spatial distribution of poverty recorded in the official figures is a consequence of methodological weaknesses in the construction of the PLs themselves and does not accurately describe the prevalence or disposition of poverty in Mozambique.

> 20 The Paasche index has been computed for 1060 enumeration areas and 49 food and non-food items using the national price for every item as a base price. 21 SIMA is the Portuguese acronym for the Agricultural Marketing System of Mozambique. SIMA is a database of agricultural market prices, updated monthly, with reasonably comprehensive coverage.

> 22 A recent policy note by Sohnesen (2011), focuses on Mozambican spatial price distribution. The note examines price distribution at the local level by calculating product prices and spatial Paasche indices under different scenarios. The basic rationale is that all the scenarios proposed to compute unit prices should not impact overall prices considerably. The fact that some scenarios show a high impact on prices leads the author to argue that price data are not stable enough to support the relatively high number of PLs used by MPD-DNEAP (2010).

> 23 All these results are available upon request.

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