Domestic technology, consumption economies of scale and poverty: evidence from Sri Lanka

ABSTRACT

While it is well known that new technologies enhance consumer welfare, the manner in which these technologies impact the ability to realize economies of scale in consumption is not well understood. We use Sri Lankan household data to examine how the adoption of new technologies by households positively impacts their ability to achieve household economies of scale. This suggests that new technologies not only deliver a greater variety of consumption goods to consumers, but they may also play an important role in enabling large households to escape poverty by lowering the per-capita costs of maintaining a given standard of living. Given the importance of consumption economies of scale in the measurement of poverty, this study provides some insights on the extent to which the number of poor households changes when food consumption scale economies due to technology adoption in the domestic sphere are incorporated.

KEYWORDS:

• Food consumption
• economies of scale
• domestic technology adoption
• poverty
• developing countries

JEL CLASSIFICATION:

• D12
• I32
• D63

Acknowledgements

Maneka Jayasinghe wishes to acknowledge the financial support received from Griffith University to undertake Ph.D study programme. The authors wish to thank the Department of Census and Statistics, Sri Lanka, for providing access to Household Income and Expenditure Survey Data. They also gratefully acknowledge the comments and feedback on an earlier version of the paper received at the 12th Australian Development Economics Workshop (ADEW), 2016 and the constructive comments offered by the anonymous reviewers.

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ The motivation for such an analysis stems from the results of our analysis of intertemporal changes in food consumption economies of scale. In an investigation on how the food consumption economies of scale changes over the period 1990–2009, in Sri Lanka, we found that such economies of scale demonstrate an increasing trend. When exploring the factors that may contribute to such increases in food economies of scale, we identified access to domestic technology may explain our observations. As a consequence, in this current article, we have attempted to verify our hypothesis that household access to domestic technology enables them to achieve greater economies of scale both theoretically and empirically. The findings of this earlier intertemporal paper were presented at the 6th Meeting of the Society for the Study of Economic Inequality, Luxembourg 2015.

² This model is an extension of (Vernon 2005).

³ These categories comprise cereal, prepared food, pulses, vegetables, yams, meat, fish, dried fish, eggs, coconuts, condiments, other foods, milk & milk products, fats & oils, sugar, fruits, confectionery and non-alcoholic beverages (Department of Census and Statistics 2011a).

⁴ These categories comprise housing & household services, fuel & lighting, personal care, health care, transport, communication, recreation, education, clothing & footwear and other ad hoc expenditure. Certain non-food expenditure items include some imputed expenditure elements (e.g. the rental value of owner-occupied housing and the value of free housing, particularly in the estate sector) (Department of Census and Statistics 2011a).

⁵ Note that we added a constant ‘1’ to the electricity expenditure share before log transforming, i.e. we used $\mathrm{l}\mathrm{n}\left(1+E{E}_{share}\right)$. This is to circumvent the problem of zero values being log transformed as missing or undefined values (Hamilton 2008).

⁶ Equivalence scales measure the changes in income required to bring households of different sizes and compositions to the same welfare level (Nelson 1993). The use of equivalent incomes also allows adjustments to be made for such consumption scale economies (Deaton and Muellbauer 1980). A detailed discussion on the estimation procedure of equivalence scales under Engel method can be found in Jayasinghe et al. (2016).

⁷ Note that, for the sake of simplicity, we assumed that economies of scale were absent in other expenditure categories, and hence use PCE for expenditure categories other than the expenditure on food.