Template-Type: ReDIF-Paper 1.0
Author-Name: Christian Elleby
Author-Name-First: Christian
Author-Name-Last: Elleby
Author-Email: christian@ifro.ku.dk
Author-Workplace-Name: Department of Food and Resource Economics, University of Copenhagen
Title: Poverty and Price Transmission 
Abstract: 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.
Length: 29 pages
Creation-Date:  2014-12
File-URL: http://okonomi.foi.dk/workingpapers/WPpdf/WP2015/IFRO_WP_2015_01.pdf
File-Format: Application/pdf
Number: 2015/01
Classification-JEL: D11, D31, Q11, Q12
Keywords: Price transmission, Food crisis, Food prices, Non-homothetic preferences, Income distribution
Handle: RePEc:foi:wpaper:2015_01