Essays on development and applied microeconomics

Abstract

This thesis comprises three empirical chapters, which are self-contained but all related to household food consumption in Bangladesh. Chapter 2 examines the Engel curve for major expenditure categories and presents estimates of equivalence scales for Bangladesh. We compare Engel curves estimated by semi-parametric techniques to those arising from models based on consumer theory. Our analysis supports the argument for a quadratic food Engel curve for developing countries. Knowledge about the correct specification of Engel curves has important implications for modelling household responses to negative income shocks. Chapter 3 studies the effect of a sharp rice price increase on welfare and poverty in Bangladesh. We employ the household expenditure information to estimate the welfare loss induced by the price increase. Our findings suggest that we underestimate the proportionate welfare loss for rice producing households, and overestimate proportionate welfare loss of households who do not produce rice if we ignore indirect effects arising from a change in household consumption and production behaviour. Our estimates further support the hypothesis of a quadratic relationship between welfare loss and permanent household income. We also demonstrate that higher rice prices either increase or decrease the poverty head-count ratio, depending on the choice of the poverty line. However, if we consider the per capita income gap as a measure of poverty, we always observe that higher rice prices unambiguously increase poverty. In Chapter 4 we study the effect of the rice price increase between 2005 and 2010 on household rice consumption in Bangladesh. Using a simple difference-in-difference estimator and household level data, we find a negative effect on the value of non-rice food consumption of net rice buyers compared to self-sufficient households. On the other hand, there is no effect on the value of rice or non-food consumption. In contrast, we find that the higher rice price does not effect the value of rice consumption of rice sellers, but increases the value of other food and non-food consumption.