Consumer spending in low-income countries is more responsive to changes in income

A chart showing consumer spending in low income countries.

Using data from World Bank's 2005 International Comparison Program (ICP), ERS recently examined changes in the consumption of eight food categories (cereals, meat, fish, dairy products, oils and fats, fruit and vegetables, other foods, and beverages and tobacco) as income varied in 144 countries, updating previous results based on the 1996 data covering 115 countries. The income elasticity measures the estimated percentage change in quantity demanded of a particular consumption category if income increases by 1 percent. In general, income elasticities for food are highest among low-income countries, averaging 0.78 percent, compared with an average of 0.50 percent for high-income countries. Thus, consumers in low-income countries spend a larger share of an increase in income on food than consumers in high-income countries. Restaurant and catering expenditures are newly included in the 2005 ICP data, raising the income elasticity for food, particularly in high-income countries. Cereals and vegetable oils/fats are among the most essential purchases for households in low-income countries. Income elasticities for these two food groups average above 0.5 for low-income countries and under 0.1 for high-income countries. This chart is from the September 2011 issue of Amber Waves magazine.

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