International Evidence on Cross-Price Effects of Food and Other Goods

Abstract

Slutsky and Cournot cross-price elasticities are calculated and reported for nine major consumption categories from the 1996 International Comparison Project data across 114 countries. The consumption categories are; food, beverage and tobacco; clothing and footwear; education; gross rent, fuel and power; house furnishings and operations; medical care; recreation; transport and communications; and other items. Additionally, cross-price elasticities are also calculated and reported for a two-good demand system of food and nonfood. Results indicate that the cross-price effects are largest with food price changes, particularly for poorer countries. All Slutsky (compensated) cross-price elasticities are positive, an indication that goods at the aggregate level are substitutes. The pattern is different when consumers are not compensated for the income effect of a price change. Cournot elasticities indicate that when the price of a necessity increases (decreases), the demand for the other goods declines (increases). The elasticity estimates represent the only available consistent cross-country cross-price elasticity estimates across this number of countries and consumption categories.