Gains from Trade and the Food Engel Curve

Farid Farrokhi, David Carson Jinkins () and Chong Xiang
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David Carson Jinkins: Copenhagen Business School

No 15674, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: This paper examines the extent to which gains-from-trade predictions from commonly-used trade theories are consistent with observed household consumption decisions. Our approach is based on inference from household-level estimation of food Engel curves in the US and in a few other countries. For a given price index as the deflator of income, deviations from food Engel curves indicate how biased that price index is relative to the true household price index. We construct open-economy price indices based on trade theory and data, evaluate their biases according to our approach, and compare them with the bias of official CPI statistics. We find that theory-consistent open-economy price indices that account for industry-level heterogeneity and input-output linkages tend to eliminate a large fraction of the bias of CPI.

Keywords: Food Engel Curves; price indices; household-level consumption; gains from trade (search for similar items in EconPapers)
JEL-codes: D12 E31 F14 (search for similar items in EconPapers)
Pages: 60 pages
Date: 2022-10
New Economics Papers: this item is included in nep-agr, nep-int and nep-opm
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Working Paper: Gains from Trade and the Food Engel Curve (2022)
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