Quadratic Food Engel Curves with Measurement Error: evidence from a budget survey

Course ID
Ethiopian Economics Association (EEA)
Abbi M. Kedir

We explore the issue of possible non-linear relationship between food share and log of real total household expenditure using parametric, non-parametric and semi-parametric techniques. There are almost no studies that estimate quadratic food Engel curves and simultaneously address the measurement error problem in the expenditure variable using budget surveys from developing countries. Our major contribution is the estimation of parametric quadratic food Engel curves controlling for measurement error in deflated total household expenditure using the 1994 Ethiopian Urban Household Budget Survey. Estimated non-parametric and semi-parametric regression results show the presence of a robust quadratic relationship between food share and real household expenditure unlike the findings from OECD countries. An analysis based on a restricted sample after excluding outliers showed that the quadratic relationship is robust. According to our IV estimates, measurement error significantly affects the precision of parameter estimates. Relative to the IV estimates estimators such as OLS and the outlier robust that are uncorrected for measurement error lead to the overestimation of the effect of income on food share in Addis Ababa but in other towns, OLS, outlier robust and LAD estimators lead to a significant underestimation of this effect. Almost an identical pattern is observed on the square term of real expenditure. Irrespective of the estimation techniques, we obtain negative and significant estimates for the quadratic logarithmic expenditure terms in the food budget share equations. Finally, we consider the potential policy distortions that result from a lack of careful handling of the statistical issues surrounding the estimation of the Engel relationship

Corporate Author: Alemayehu Seyoum … [et al.] (editor)
Publisher: Ethiopian Economic Association (EEA)
Primary Descriptors: Quadratic Food Engel Curves; Measurement Error

Secondary Descriptor: Instrumental variable estimator; Outlier

Geographic Descriptors: Ethiopia
Cataloge Date: 02/27/2013
Broad Subject heading: Deflated Total Household expenditure
Call Number: 330.963 PRO 2005
Serial Key Title: Proceedings of the Second International Conference on the Ethiopian Economy
Publication catagory: International Conference
Content type: EEA Publication
Volume: II
Publication date: 2013-05-27 23:05:00
Forum or Discussion date: 2013-02-27 14:55:45
Place of publication: Addis Ababa, Ethiopia
Type of material: Book
Current frequency: Annualy
Author: Abbi M.Kedir and Sourafel Girma