Food demand elasticities in Ethiopia: Estimates using household income consumption expenditure (HICE) survey data

Type Working Paper - Ethiopia Strategy Support Program 2 (ESSP2)/ Discussion Paper
Title Food demand elasticities in Ethiopia: Estimates using household income consumption expenditure (HICE) survey data
Volume 11
Publication (Day/Month/Year) 2010
Page numbers 1-53
URL Discussion Paper 011.pdf?1
How households adjust their consumption in response to changes in prices and income is crucial determinant of the effects of various shocks to market prices and commodity supplies. These adjustments in demand are particularly significant in Ethiopia, where many households consume inadequate quantities of calories, protein and other nutrients. Household consumption behaviour in the country is also rather complex. Regional consumption patterns differ considerably with no single staple dominating. Instead, four different cereals (teff, wheat, maize and sorghum) are major staples in parts of the country and even within most regions, two or more food staples account for relatively large shares of total calories and food expenditures1. Quantifying household responses to price and income changes requires careful econometric analysis of household consumption patterns. This paper utilizes household level data on consumption, prices, expenditures, and household characteristics (including location, size, and education of household head) to estimate demand parameters for various commodity groups. The Quadratic Almost Ideal Demand Model (QU-AIDM) was used for that purpose. The QU-AIDM has solid theoretical foundations and sufficient flexibility to capture substitution effects that are especially important in the Ethiopian context of multiple staple foods. The recent unprecedented rise in food prices in Ethiopia renewed interest in the empirical analysis of consumer demand.2 Coupled with the paucity of current and Ethiopia-specific demand elasticities estimates, this interest makes the present study timely. Indeed, robust income and price elasticities of demand not only deepen understanding of economic behaviour in the country, but can also enhance policy analysis by serving as important ingredients to such efforts as welfare evaluations and CGE analyses.

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