Calorie consumption and income: panel cointegration and causality evidence in developing countries

Abstract

Two theories characterize the relationship between calorie consumption and income. The Engel curve hypothesizes that calories are determined by income whereas the efficiency wage hypothesis posits the converse. This article examines the validity of these hypotheses for 41 developing countries using panel cointegration methods. Results show bidirectional causality and both hypotheses are supported. The long-run income elasticity of calorie demand is 0.25, and the calorie elasticity of income generation is 1.78. Thus, increases in income can alleviate malnutrition to a limited extent, and increases in calorie consumption lead to greater work effort and income.

Acknowledgement

Ana Sanjuán gratefully acknowledges financial support from the Department of Science, Technology and University of the Government of Aragón through the program ‘Fomento de movilidad de investigadores’.

Notes

¹Dawson and Tiffin (1998) estimated a relationship between C and Y that includes food prices, which are insignificant. Preliminary analysis here shows that the unbalanced panel of food prices, restricted by data availability, has an IPS-statistic of –3.24 (p = 0.00), and the null that each individual series contains a unit root is rejected. Thus, food prices do not form part of a long-run cointegrating relationship between C and Y.