Disparate changes of living standard in China: perspective from Engel's coefficient

Abstract

PurposeThis paper aims to investigate the changes in living standard among families with different socio-economic status in China with the use of Engel's Coefficient. The authors develop a decomposition methodology to figure out the driving forces behind changes in Engel's Coefficient, and investigate how dramatic economic growth, volatile food price and rapid nutrition transition affect living standard among different families.Design/methodology/approachThe authors propose a statistical method to decompose the changes in living standard measured by Engel's Coefficient into structure effect, price effect, quantity effect and income effect. Using the China Health and Nutrition Survey data between 2000 and 2011, the authors estimate these four effects by employing a decomposition method.FindingsResults show that Engel's Coefficient in China decreased by 8.7 percentage points (hereafter “pp”) during 2000–2011, where structure effect leads to 0.2 pp increase, price effect results in 17.7 pp increase, quantity effect brings about 12.4 pp decline and income effect contributes to 14.2 pp decline. Results indicate that rising food prices are the main obstacle to improve households' living standard. Typically, poor and rural families' living standard is more vulnerable to the rise in food prices, and they benefit less from income growth.Originality/valueThis study proposes a decomposition method to investigate the determinants of change in Engel's Coefficient, which provides a deeper understanding of how economic growth, food price change and nutrition transition affect people's living standard in different socio-economic groups in developing countries. This study also provides valuable insights on how to achieve common prosperity from the perspective of consumption upgrading.