The Impact of Food Price Inflation on Subjective Well-being: Evidence From Urban Ethiopia

The world has experienced dramatic food price inflation in recent years, which sparked social unrest and riots in various developing countries. In this paper, we use a novel approach to measure the impact of food price inflation on subjective well-being of urban households in Ethiopia, a country which exhibited one of the highest rates of food price inflation during 2007–2008. Using an ordered probit regression, we show that being negatively affected by a food price shock reduced subjective well-being of households significantly, although the economy was growing rapidly. We also show that relative standing has a large negative effect on subjective well-being of respondents. The fact that rapid economic growth was accompanied by a decline in citizens’ average reported level of life satisfaction brings its pro-poorness into question. We argue that controlling the rise in food price and ensuring that economic growth trickles down to the average urban citizen would enhance welfare significantly. Copyright Springer Science+Business Media Dordrecht 2014