Estimation of Quadratic Food Engel Curve in the presence of Measurement Error and Endogeneity of Total Expenditure in Pakistan

Abstract

This study is conducted to compare the four different estimation techniques, Ordinary least square, Instrumental Variable, Lewbel (1996) approach and control function approach estimating the quadratic food Engel curve in the presence of the problem of measurement error and the problem of endogeneity of total expenditure. The authors have used the HIES data 2010-11 as it has been observed that the HIES data 2010-11 fits a quadratic shape of food Engel curve in Pakistani context. Moreover, the expenditure elasticity of food demand was observed between zero and one which indicates the fact that food is a necessary good for Pakistani households. The results also shows that endogeneity of total expenditure is more serious issue than the measurement error.