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As
reported in International Evidence
on Food Consumption Patterns, the budget shares and elasticities
are derived as follows:
International Comparison Project Data
The International Comparison Project (ICP) was initiated in 1975 by researchers at the University of Pennsylvania and is maintained by the ICP Development Data Group of the World Bank. Over the years, data collected by the ICP have increased from 10 countries in Phase I (1970) to 146 countries in 2005. ERS estimates are based on the latest ICP data (2005). The 146 economies covered by the data account for more than 95 percent of the world’s population and 98 percent of the world’s nominal GDP. Most of the countries included for the first time in this round are low-income countries in Africa. The number of African countries included more than doubled from 22 in 1996 to 48 in 2005. Several Asian countries were newly included, most notably China and India. In South America, Colombia was added and 12 Caribbean countries were excluded. The Commonwealth of Independent States (CIS) no longer covers Turkmenistan and Uzbekistan, so these countries were dropped from the 2005 data set. In West Asia, Iraq and Kuwait were added, and in the OECD/Europe and other countries group, Cyprus, Malta, Croatia, Bosnia and Herzegovina, Montenegro, and Serbia were included for the first time.
The 2005 ICP uses a new methodology to compare relative price levels and GDP levels across the 146 countries included in this round. Participant countries are now divided into six regions: five geographic regions—Africa (48 countries included), Asia Pacific (23 countries), West Asia (11 countries), South America (10 countries), and the CIS (10 countries)—and the OECD and other European countries, plus Israel and Russia (46 countries). Egypt appears in both the African and the West Asian regions, and Russia appears in both the OECD/Europe and CIS regions. In earlier rounds, one product list was used for all countries covered, and prices for these products needed to be collected. However, consumption varies sufficiently across regions, making such a common product list impractical. For the 2005 round, each of the regions developed its own product list and determined its purchasing power parity and volume shares independently. Later, the regional results were linked to a global world comparison model that left the regional relative parities intact.
Two-Stage Demand Model
This analysis uses a two-stage demand system. In the first stage,
consumers are assumed to make budget choices over broad consumption
groups. Given the budget endowment for each broad consumption group,
in the second stage consumers make budget choices for consumption
items within each group. In using this approach, we maintain preference
independence within the broad groups. In the second stage, weak
separability among items within a broad group is assumed.
The Florida model, a modified Working's model that incorporates price terms, is fit to the first-stage model for nine broad groups of goods across 144 countries. Although ICP data cover 146 countries, Greece was not available at the basic heading level and Comoros was excluded from the analysis due to data concerns. This model assumes preference independence. A modified version of the Florida model, the Florida Slutsky model, which assumes weak separability, is fit to the eight food subgroups. The country data exhibit group heteroskedasticity. A maximum likelihood procedure that corrects for group heteroskedasticity is developed and used to estimate the model. Outliers are identified with information inaccuracy measures, and Strobel measures of goodness-of-fit are calculated.
The parameters estimated in the first stage of the analysis are used to calculate elasticities for the broad consumption groups, and the parameters estimated in the second stage are used to calculate the conditional elasticities for the food subgroups. The unconditional elasticities for the food subgroups are then calculated using the conditional elasticities and the elasticities for food estimated in the first stage of the estimation process.
For additional information and references, see International
Evidence on Food Consumption Patterns.
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