Poverty and Price Transmission

Arbeitspapier

A key parameter determining the welfare impact from a world market shock is the transmission elasticity which measures the average domestic response to an international price change. Many studies have estimated price transmission elasticities for a large number of countries but the variation in these estimates is so far largely unexplored. This paper proposes a model which explains a country's domestic price response to world market shocks in terms of its demand structure. The model delivers two testable predictions; price transmission is increasing in per capita food expenditure and in income inequality. The empirical analysis of price changes during the food crises confirms these predictions with a caveat. I find significant inverse U-shaped relationships between domestic food price growth in 2007-8 and 2010-11 and per capita food expenditure. Unequal countries also experienced higher price growth but the relationship is less significant. The finding that food prices in middle-income countries increased the most during the food crises is a cause for concern in light of the fact that the majority of the world's poor today live in middle-income countries.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: IFRO Working Paper ; No. 2015/01

Classification and Topics

• Classification: Wirtschaft ; Consumer Economics: Theory ; Personal Income, Wealth, and Their Distributions ; Agriculture: Aggregate Supply and Demand Analysis; Prices ; Micro Analysis of Farm Firms, Farm Households, and Farm Input Markets
• Subject: Price transmission ; Food crisis ; Food prices ; Non-homothetic preferences ; Income distribution

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Elleby, Christian
• Event: Veröffentlichung
• (who): University of Copenhagen, Department of Food and Resource Economics (IFRO)
• (where): Copenhagen
• (when): 2014

Further information

• Handle: http://hdl.handle.net/10419/204381
• Last update: 10.03.2025, 11:43 AM CET