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Poverty effects of food price escalation: The importance of substitution effects in Mexican households

  • Wood, Benjamin D.K.
  • Nelson, Carl H.
  • Nogueira, Lia

Recent food price increases reportedly caused significant numbers of households to fall into poverty, particularly in the developing world. Most research into the welfare effects of these food price changes assumes constant demand or approximates second order substitution effects. Poverty forecasts with these assumptions may overestimate or underestimate the effect of food price increases in a nation where most households consume diverse food baskets. We account for full substitution by calculating a theoretically consistent food demand system, accounting for household responses to food price changes by decreasing some food purchases and increasing other food purchases. We use Mexican data to confirm the mitigation of adverse welfare effects from food price increases after accounting for country-specific dietary preferences in modeling demand. In comparison to previous literature, our welfare measures predict theoretically consistent numbers of Mexican households entering poverty due to recent food price changes.

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Article provided by Elsevier in its journal Food Policy.

Volume (Year): 37 (2012)
Issue (Month): 1 ()
Pages: 77-85

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Handle: RePEc:eee:jfpoli:v:37:y:2012:i:1:p:77-85
Contact details of provider: Web page: http://www.elsevier.com/locate/foodpol

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  1. Valero-Gil, Jorge & Valero, Magali, 2008. "The effects of rising food prices on poverty in Mexico," MPRA Paper 10221, University Library of Munich, Germany.
  2. Arthur Lewbel & Krishna Pendakur, 2006. "Tricks With Hicks: The EASI Demand System," Boston College Working Papers in Economics 651, Boston College Department of Economics, revised 26 Nov 2008.
  3. Maros Ivanic & Will Martin, 2008. "Implications of higher global food prices for poverty in low-income countries-super-1," Agricultural Economics, International Association of Agricultural Economists, vol. 39(s1), pages 405-416, November.
  4. Héctor J. Villarreal & Juan Carlos Chávez & Ricardo Cantú & Horacio González, 2008. "Impacto del Incremento en los Precios de los Alimentos en la Pobreza en México," Working Papers 20081, Centro de Estudios de las Finanzas Públicas, H. Cámara de Diputados, revised Jul 2008.
  5. Dyer, George A. & Taylor, J. Edward, 2011. "The Corn Price Surge: Impacts on Rural Mexico," World Development, Elsevier, vol. 39(10), pages 1878-1887.
  6. Deaton, Angus S & Muellbauer, John, 1980. "An Almost Ideal Demand System," American Economic Review, American Economic Association, vol. 70(3), pages 312-26, June.
  7. De Hoyos, Rafael E. & Medvedev, Denis, 2009. "Poverty effects of higher food prices : a global perspective," Policy Research Working Paper Series 4887, The World Bank.
  8. Mellor, John W, 1978. "Food Price Policy and Income Distribution in Low-Income Countries," Economic Development and Cultural Change, University of Chicago Press, vol. 27(1), pages 1-26, October.
  9. Ivanic, Maros & Martin, Will, 2008. "Implications of higher global food prices for poverty in low-income countries," Policy Research Working Paper Series 4594, The World Bank.
  10. James Banks & Richard Blundell & Arthur Lewbel, 1997. "Quadratic Engel Curves And Consumer Demand," The Review of Economics and Statistics, MIT Press, vol. 79(4), pages 527-539, November.
  11. Piesse, Jenifer & Thirtle, Colin, 2009. "Three bubbles and a panic: An explanatory review of recent food commodity price events," Food Policy, Elsevier, vol. 34(2), pages 119-129, April.
  12. Muellbauer, John, 1976. "Community Preferences and the Representative Consumer," Econometrica, Econometric Society, vol. 44(5), pages 979-99, September.
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