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An Analysis of Household Responses to Price Shocks in Vietnam: Can Unit Values Substitute for Market Prices?

  • Yoko Niimi

    ()

    (Poverty Research Unit at Sussex, University of Sussex)

This paper examines the robustness of Deaton’s widely used method for estimating consumer responses. While unit values, ratios of expenditures to quantities purchased, are often employed in demand analysis as proxies for missing market prices, Deaton argues bias is likely to result as a consequence of both quality effects and measurement error. Hence he proposes a procedure that corrects the bias and enables price elasticities to be obtained in the absence of explicit price information. Given the availability of market price data and unit values in Vietnam, this paper estimates a food demand system and investigates the usefulness of Deaton’s method. It also takes the analysis a step further to the existing literature by computing the welfare impact of price changes to see how Deaton’s method performs in this context. The results demonstrate that Deaton’s method generates materially different price elasticities from those estimated with market prices. However, it produces relatively similar results for the welfare analysis. Deaton’s procedure therefore appears to be valid in welfare analysis at least in the case of Vietnam, but the findings also indicate that its use by policymakers should carry a strong health warning.

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Paper provided by Poverty Research Unit at Sussex, University of Sussex in its series PRUS Working Papers with number 30.

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Length: 60 pages
Date of creation: May 2005
Date of revision:
Handle: RePEc:pru:wpaper:30
Contact details of provider: Postal: School of Social Sciences and Cultural Studies, Falmer, Brighton BN1 9SN
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Web page: http://www.sussex.ac.uk/Units/PRU/
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  1. L. Alan Winters & Neil McCulloch & Andrew McKay, 2004. "Trade Liberalization and Poverty: The Evidence So Far," Journal of Economic Literature, American Economic Association, vol. 42(1), pages 72-115, March.
  2. Dwayne Benjamin & Loren Brandt, 2002. "Agriculture and Income Distribution in Rural Vietnam under Economic Reforms: A Tale of Two Regions," Working Papers benjamin-02-01, University of Toronto, Department of Economics.
  3. Nelson, Julie A, 1990. "Quantity Aggregation in Consumer Demand Analysis When Physical Quantities Are Observed," The Review of Economics and Statistics, MIT Press, vol. 72(1), pages 153-56, February.
  4. Pitt, Mark M, 1983. "Food Preferences and Nutrition in Rural Bangladesh," The Review of Economics and Statistics, MIT Press, vol. 65(1), pages 105-14, February.
  5. Minot, Nicholas & Goletti, Francesco, 2000. "Rice market liberalization and poverty in Viet Nam:," Research reports 114, International Food Policy Research Institute (IFPRI).
  6. L. Wade, 1988. "Review," Public Choice, Springer, vol. 58(1), pages 99-100, July.
  7. Deaton, A., 1990. "Price Elasticities From Surveys Data: Extensions And Indonesian Results," Papers 69, World Bank - Living Standards Measurement.
  8. Deaton, Angus S & Muellbauer, John, 1980. "An Almost Ideal Demand System," American Economic Review, American Economic Association, vol. 70(3), pages 312-26, June.
  9. Niimi, Yoko & Vasudeva Dutta, Puja, 2007. "Trade Liberalisation and Poverty Dynamics in Vietnam," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 22, pages 819-851.
  10. Nicita, Alessandro, 2004. "Who benefited from trade liberalization in Mexico? Measuring the effects on household welfare," Policy Research Working Paper Series 3265, The World Bank.
  11. Nicita, Alessandro, 2004. "Efficiency and equity of a marginal tax reform - income, quality, and price elasticities for Mexico," Policy Research Working Paper Series 3266, The World Bank.
  12. Leif Brubakk, 1997. "Estimation of Price Elasticities from Norwegian Household Survey Data," Discussion Papers 202, Research Department of Statistics Norway.
  13. Harold Alderman, 1988. "Estimates of Consumer Price Response in Pakistan using Market Prices as Data," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 27(2), pages 89-107.
  14. Stavrev, Emil & Kambourov, Gueorgui, 1999. "Estimation of Income, Own- and Cross-Price Elasticities. An Application for Bulgaria," Transition Economics Series 6, Institute for Advanced Studies.
  15. L. Alan Winters, 2002. "Trade Liberalisation and Poverty: What are the Links?," The World Economy, Wiley Blackwell, vol. 25(9), pages 1339-1367, 09.
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