This paper examines the factors which give rise to spatial variations in the cost of living. Based upon location theory and earlier research into cross-sectional price differentials, a simple spatial model of the cost of living is developed. Empirical testing of the model identifies climate and metropolitan area population as the primary determinants of spatial variations in the cost of living. Both large metropolitan areas and smaller areas which are located nearby are found to have a higher cost of living. The paper thus identifies a price shadow cast by large metropolitan areas over their smaller neighbors. 17 pp. Ref.
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