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Food, Fuel, and Facts: Distributional Effects of Global Price Shocks

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Listed:
  • Saroj Bhattarai
  • Arpita Chatterjee
  • Gautham Udupa

Abstract

Exogenous global commodity price shocks lead to a significant decline over time in Indian household consumption. These negative effects are heterogeneous along the income distribution: households in lower income groups experience more adverse consumption effects following an exogenous rise in food prices, whereas households in the lowest and the two highest income groups are affected similarly following an exogenous rise in oil prices. We investigate how income and relative price changes contribute to generating these heterogeneous effects. Global food price shocks lead to significant negative wage income effects that mirror the pattern of negative consumption effects along the income distribution. Both global oil and food price shocks pass-through to local consumer prices in India and increase the relative prices of fuel and food respectively. Expenditure share of food increases with such a rise in relative prices, which provides unambiguous evidence for non-homothetic preferences. Using the expenditure share responses together with theory, we show that food, compared to fuel, is a necessary consumption good for all income groups.

Suggested Citation

  • Saroj Bhattarai & Arpita Chatterjee & Gautham Udupa, 2024. "Food, Fuel, and Facts: Distributional Effects of Global Price Shocks," CAMA Working Papers 2024-45, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  • Handle: RePEc:een:camaaa:2024-45
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    More about this item

    Keywords

    global price shocks; food prices; oil prices; inequality; household heterogeneity; household consumption; necessary good; non-homotheticity; India;
    All these keywords.

    JEL classification:

    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F62 - International Economics - - Economic Impacts of Globalization - - - Macroeconomic Impacts
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development

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