THE SENSITIVITY OF CALORIE-INCOME DEMAND ELASTICITY TO PRICE CHANGES: EVIDENCE FROM INDONESIA

The calorie-income demand elasticity is an important parameter in thedevelopment literature and in the policy arena. Yet, there is very little evidence on theextent to which it can be considered as an unchanging parameter or a time-shiftingparameter that, for example, changes with the economic conditions faced by households.In this paper I use data from the 1996 and 1999 National Socio-EconomicSurveys (SUSENAS) in Indonesia to examine whether the relationship between incomechanges and caloric availability has changed and if so, how. Using the samequestionnaire, the SUSENAS surveys collect detailed information on more than 200different food items consumed over the last seven days by 60,000 households at the samepoint in each survey year. I use nonparametric as well as regression methods to examinetwo important relationships: (1) between income and total calories, and (2) betweenincome and calories from cereals and other foods (excluding cereals and root crops).The empirical analysis finds that the income elasticity of the demand for totalcalories is slightly higher in February 1999 (the crisis year with dramatically differentrelative prices) compared to its level in February 1996. Also, the calorie-income elasticityfor cereals as a group increases while the calorie-income elasticity for other food itemsdecreases. The latter finding is interpreted as consistent with the presence of a bindingsubsistence constraint.