Can Economic Crises Be Good for Your Diet?

Transcription

1 DISCUSSION PAPER SERIES IZA DP No Can Eonomi Crises Be ood for Your Diet? Ralitza Dimova Ira N. ang Monnet bakou Daniel Hoffman Marh 2011 Forshungsinstitut zur Zukunft der Arbeit Institute for the Study of Labor

2 Can Eonomi Crises Be ood for Your Diet? Ralitza Dimova University of Manhester and IZA Ira N. ang Rutgers University, CReAM and IZA Monnet bakou University of Coody-Abidjan Daniel Hoffman Rutgers University Disussion Paper No Marh 2011 IZA P.O. Box Bonn ermany Phone: Fax: Any opinions expressed here are those of the author(s) and not those of IZA. Researh published in this series may inlude views on poliy, but the institute itself takes no institutional poliy positions. The Institute for the Study of Labor (IZA) in Bonn is a loal and virtual international researh enter and a plae of ommuniation between siene, politis and business. IZA is an independent nonprofit organization supported by Deutshe Post Foundation. The enter is assoiated with the University of Bonn and offers a stimulating researh environment through its international network, workshops and onferenes, data servie, projet support, researh visits and dotoral program. IZA engages in (i) original and internationally ompetitive researh in all fields of labor eonomis, (ii) development of poliy onepts, and (iii) dissemination of researh results and onepts to the interested publi. IZA Disussion Papers often represent preliminary work and are irulated to enourage disussion. Citation of suh a paper should aount for its provisional harater. A revised version may be available diretly from the author.

3 IZA Disussion Paper No Marh 2011 ABSTRACT Can Eonomi Crises Be ood for Your Diet? * With fortuitously timed data olleted before, during and after a major maro-finanial risis in Bulgaria we revisit several hypotheses in the eonomis and nutritional literature related to the tendeny of households to smooth their nutritional status over time. We explore the dietary impat of both falling real inomes in the ontext of hyperinflation and risis and hanging relative pries and the hanging responsiveness of different groups of people to these inomes and pries over six year of fundamental strutural reforms of the eonomy. Our results highlight large and dramatially hanging food and nutrient elastiities, whih hallenge the pereption of household ability to smooth their nutrient stream during eonomi rises and transitions. JEL Classifiation: E320, I120, P230, P240, P360 Keywords: risis, diet, flutuation, health, nutrition Corresponding author: Ralitza Dimova Shool of Environment and Development University of Manhester Arthur Lewis Building Manhester M13 9PL United Kingdom ralitza.dimova@manhester.a.uk * This work was supported by the Leverhulme Trust F/00 275/L. Most of the work on this paper was ompleted while Ralitza was a leturer and Monnet was a researh fellow at Brunel University in London. Monnet thanks the Leverhulme trust for full finanial support, while Ira and Daniel thank for the travel grants that allowed them to travel to the UK on several oasions.

4 1. Introdution One of the most hallenging areas of eonomi researh is the unexpeted reurrene of eonomi rises around the world. Crises take many different forms, from ollapse in finanial systems and prodution relations to hyperinflation and dramati shifts in relative pries of key onsumption items and staple foods. The impliations of suh shifts for the welfare of affeted vulnerable groups of people an be devastating. However, it also presents the hallenging question of whether eonomi rises an be benefiial, judged by key health-related eonomi indiators, suh as diet and nutrition. The literature provides neither an unambiguous analytial framework to study this issue nor a onrete answer to this question. While dietary hanges assoiated with major eonomi hanges have been studied in many different ontexts, most of the studies have foused on transformations that follow long periods of improved eonomi growth in the proess of eonomi development. On the one hand, suh periods of prolonged improvement in aggregate eonomi welfare are found to redue the inidene of malnutrition (Berhman and Deolalikar, 1990). On the other hand, they introdue a dietary downside, ommonly referred to as the nutrition transition a hange in food marketing and prodution systems that is assoiated with inreased availability of proessed foods, a lower intake of fruits, vegetables and fibre and an inreased intake of fat, espeially in the middle-inome urban strata of the developing ountries populations (Popkin, 1993; Behrman and Deolalikar, 1987). One ould argue that a reversal of the proess of eonomi growth and welfare amelioration during an eonomi risis, ould lead to an improvement of the nutritional status of people who have launhed upon what Popkin (1993) alls a degenerative disease pattern of the nutrition transition. This argument lashes, at least partly, with the stylized logi of the permanent inome hypotheses or the ability of individuals and households to smooth their onsumption and/or nutrition aross temporary eonomi shoks. Dunan and Stillman (2008) have found that during the 1998 eonomi risis in Russia, the nutritional status of people, measured by their gross energy intake, adult weight and hild struture was very resilient to short-term flutuations in finanial resoures. Their finding is akin to that of Berhman and Deolalikar (1987) who argue that the inome elastiities of nutrients are smaller than the orresponding food elastiities and hene households are more willing to ompromise on tastes than nutritional value over short enough periods of time. [2]

5 Still, do people always find it possible to smooth onsumption and nutrition during periods of dramati delines in inome, hyperinflation and hanges in relative pries of food items? The literature on onsumption smoothing has explored various ways of smoothing out the effets of various shoks, from spending down aumulated wealth to re-alloating resoures, transfers and sharing risk within a ommunity (Cox and Jimenez, 1990; Rosenzweig and Wolpin, 1993; Lim and Townsend, 1994). However, the usual finding is that in the ontext of missing markets and signifiant finanial onstraint, omplete smoothing of the onsumption stream is almost never possible (Paxton, 1992; Deaton, 1997; Townsend, 1995). Using three unique ross-setions of household data on Bulgaria from the time when little strutural reform had taken plae (1995), through one of the most dramati maro-finanial rises in the history of the former Soviet Blok eonomies (1997), till the time when major strutural reform onluded (2001), we explore the impat of major shifts in maro-eonomi onditions and the assoiated dramati hanges in aggregate inomes, aggregate prie levels and relative pries of key onsumption goods on the diet of different groups in the Bulgarian population. We explore not only the hanges in food demand and nutrition aross dramatially hanging onditions, but also the relative role of not only the hanging real inomes, but also of relative pries and the hanging responsiveness (or elastiity) of different groups of people to these hanging inomes and pries. Our results highlight large and dramatially hanging food and nutrient elastiities, whih hallenge the pereption of household ability to smooth their nutrient stream during eonomi rises and transitions. These hanges are generally onsistent with the logi of the nutrition transition and are reversed during the marofinanial risis. The remainder of this paper is organized as follows: In setion two we outline the general eonomi bakground of this study on Bulgaria and positions our study within the related literature on nutrition in Eastern Europe. In setion three we desribe the data and look at some hanges in food onsumption and nutrition in Bulgaria over time. In setion four we disuss our results on the inome and prie elastiities of key food groups, while in setion five we disuss the orresponding results on nutrient prie and inome elastiities. Setion six ontains our final onlusions. [3]

6 2. Eonomi bakground and nutrition While the Central and East European (CEE) region has never been onsidered a lassial ase for the disussion of the nutrition transition, food balane sheet data indiates that as early as , average alories, proteins and fats rose substantially and generally exeeded the World Health Organization (WHO) requirements (Cornea, 1994). Interestingly, when the real average inomes delined between 18% and 39% in the early 1990s, the response of different parts of the region to the shok varied signifiantly (Stillman, 2006). In ertain ountries, suh as Poland, the poor and very poor experiened a seond nutrition transition and a deformed diet struture favouring animal fats and starhes and shying away from milk, animal proteins, vegetable oils and mironutrients (Cornea, 1994). In other ountries, e.g. Russia, lower inome families were able to adopt more effetive behavioural strategies in favour of lower fat diets than high inome families (Dore, Adair and Popkin, 2003). Almost nowhere was the shok of strutural reform and risis as severe as in Bulgaria. The dissolution of the CMEA, the war in former Yugoslavia, and poliy stalemates all led to a greater drop in output and higher inflation than in the majority of the CEE ountries, whih ulminated in the risis of While the risis in Russia led to a 40% inrease in inflation, from 20% to 60%, between 1996 and 1997, inflation in Bulgaria inreased by 827% from the already high base of 122.9%. Lifetime savings were lost. The inidene of poverty inreased by 77% (Sahn, Younger and Mayerhoefer, 2002), while the drop in food onsumption exeeded that of the majority of the CEE ountries (Elsner and Hartmann, 1998). The aggregate drop in onsumption sine the early 1990s was highest for meat and ommerially produed bread, possibly on aount of both inome deline and agriultural setor problems whih made the prodution of grains and livestok espeially problemati (Ivanova et al, 2006). The Bulgarian government reated to the risis of with sweeping reforms that targeted both maroeonomi stability and strutural hanges. Among the immediate onsequenes of the reform was the steady rise in produtivity and inomes and a signifiant foreign diret investment (FDI) inflow. During the FDI inflow exeeded by 80% the entire inflow of FDI attrated during the period (World Bank, 2001). Importantly for our study, Bulgaria was one of the CEE ountries where the food industry beame one of the most prominent FDI targets (Elsner and Hartmann, 1998). Taken together, all post-risis developments set a basis for both signifiant diversifiation of the food basket and inreasing ability of a large proportion of the [4]

7 population to selet a basket of its hoie. To the best of our knowledge, only Ivanova et al (2006) have thus far attempted to explore the determinants of food onsumption and nutrition during Bulgaria s transition. Using aggregate pooled data on food onsumption for , this study established that aggregate inome (i.e. NP) had no signifiant impat on nutrition, measured by total alories onsumed. The study s onlusion was that hanging pries (aptured by the onsumer prie index) may have been the primary determinant of nutrition. The use of aggregate data over the whole transition period paints a fairly unsatisfatory piture of Bulgaria s nutrition transition due to its inability to aount for important fators suh as substitutability of goods of different nutritional qualities, ruial household and oupational harateristis and the strutural break of the risis period of One of the purposes of our study is to fill these gaps in the literature. 3. The story of onsumption and nutrition in Bulgaria The main data soures for our analysis are the Living Standards Measurement Surveys (LSMS) for 1995, 1997 and 2001, provided by the World Bank 1. The surveys provide detailed information on monthly food onsumption and expenditures, total expenditures and inomes, demographi and other harateristis of interest from approximately 2500 randomly seleted households in eah of the three ross-setions 2. We supplement these data with data on the nutrient omposition of all food groups onsumed, olleted by the National Centre of Publi Health Protetion in Bulgaria 3. A preliminary analysis of the data shows that average monthly real inomes delined dramatially from levs to levs between 1995 and 1997 and then went bak to approximately their original levels by There is evidene that the dramati hanges in inomes may have influened food expenditures signifiantly (Ivanova et al, 2006), and we would like to explore this possibility as a first step in our desriptive analysis. Table 1 highlights the perentage hanges in the food baskets of households belonging to different segments of the 1995 inome distribution between 1995 and 1997 and between 1997 and While a survey for 2003 is now also available, it differs signifiantly from the other three surveys and thus makes omparisons aross four ross-setions diffiult. At the same time, the Bulgarian eonomy stabilized signifiantly after 2000 and we do not expet major hanges to have taken plae between 2001 and 2003 in the phenomena and indiators we are interested in. 2 Speifially, the surveys inlude information on 2468 households in 1995, 2323 households in 1997 and 2633 households in We thank Ludmila Ivanova and Plamen Dimitrov for making these data available to us. [5]

8 Table 1: Changes in the budget share of key food groups, Variable th perentile Bread 0.15 (0.10) 0.26 (0.13) 0.22 (0.12) Starhes 0.15 (0.08) 0.14 (0.10) 0.16 (0.08) Meat 0.21 (0.11) 0.19 (0.12) 0.18 (0.11) Fruit-vegetables 0.18 (0.10) 0.14 (0.10) 0.14 (0.10) Oil-fat 0.05 (0.03) 0.04 (0.03) 0.06 (0.04) Dairies 0.22 (0.11) 0.18 (0.12) 0.19 (0.11) Sweets 0.04 (0.03) 0.05 (0.06) 0.04 (0.04) th perentile Bread 0.10 (0.07) 0.16 (0.08) 0.16 (0.09) Starhes 0.12 (0.06) 0.11 (0.06) 0.13 (0.06) Meat 0.24 (0.11) 0.28 (0.13) 0.23 (0.11) Fruit-vegetables 0.22 (0.12) 0.20 (0.13) 0.18 (0.10) Oil-fat 0.05 (0.05) 0.04 (0.03) 0.05 (0.03) Dairies 0.20 (0.12) 0.16 (0.09) 0.19 (0.10) Sweets 0.06 (0.04) 0.06 (0.05) 0.06 (0.04) 90 th perentile Bread 0.06 (0.08) 0.08 (0.05) 0.11 (0.10) Starhes 0.08 (0.04) 0.08 (0.05) 0.11 (0.09) Meat 0.32 (0.12) 0.41 (0.15) 0.28 (0.15) Fruit-vegetables 0.26 (0.11) 0.21 (0.11) 0.19 (0.10) Oil-fat 0.04 (0.05) 0.04 (0.02) 0.04 (0.03) Dairies 0.17 (0.10) 0.15 (0.05) 0.18 (0.10) Sweets 0.08 (0.05) 0.05 (0.04) 0.08 (0.07) Soure: Own alulations based on the LSMS data set. shares (standard errors). See the text for a desription of perentiles determination. Briefly, for 1995 we use atual perentiles, for 1997 and 2001 the division between the reported perentiles refers to the 1995 boundaries for these perentiles, appropriately adjusted for inflation. To keep our terms of referene broadly the same over time, we follow a proedure similar to that used by the LSMS team in onstruting omparable poverty lines over time. Speifially, we alloate households in different inome perentiles in We then adjust the referene inome of households for inflation and define the perentile distribution of households in 1997 and 2001 aordingly. For instane, let the 10 th perentile in 1995 inlude households whose inomes lie between 0 and X levs. In defining the 10 th perentile in 1997, we adjust X for inflation and inlude in the 10 th perentile of the 1997 distribution households whose inomes lie between 0 and X/CPI [6]

9 levs. Hene, while for 1995 we are dealing with the atual perentiles as stated, for 1997 and 2001 the division between the reported perentiles in fat refers to the 1995 boundaries for these perentiles, appropriately adjusted for inflation. In this way we are looking at absolute as opposed to relative welfare measures and their real hanges over time. Perhaps the most striking observation in this table is the signifiantly larger proportion of bread and starhes in the food basket of the poorer perentiles and the signifiantly larger proportion of meat in the food basket of the rihest perentiles throughout the period. During the risis, the proportion of bread in the food basket of all groups of onsumers went up, while the proportion of meat dereased slightly for the poorest perentiles and went up signifiantly for the rihest perentiles. After the risis, the onsumption patterns shifted bak towards the original positions, but never returned to the pre-risis levels. The fat that the food basket hanged signifiantly during a period of dramati redution in the purhasing power of households is not surprising and is well doumented in the literature. Numerous authors (e.g. Cornea, 1994; Zahoori et al, 2001; Popkin et al, 1996) find signifiant hanges in the food baskets of households in the proess of strutural reform and rises. The interesting harateristi of the Bulgarian experiene is that in ontrast to the reported absene of assoiation between household resoures and alorie and/or other nutrient intakes in these studies, hanging real resoures did appear to affet signifiantly the nutrient intake of Bulgarian households during the risis. On the one hand, the average alori intake dereased signifiantly during the risis for all inome perentiles and started reovering afterwards, though never returning to the pre-risis levels (Ivanova et al, 2006). Furthermore, the nutrient omposition of the diet shifted with a lower intake of fats and a higher intake of proteins and arbohydrates, reversing the nutritional transition (Figure 1). The pattern was harateristi of all inome groups. iven the omplexity of the eonomi situation during the fous period, it is diffiult to attribute hanges in onsumption and nutrition to one partiular fator. Thus, the hanges ould have been driven by either the redution of purhasing power alone, or hanging relative pries of key food items or hange in the responsiveness of households to these inomes and pries. From a poliy making perspetive, it is instrutive to disentangle the impliations of all of these influenes. [7]

10 Figure 1: Changes in nutrient onsumption share of proteins share of fats share of arbohydrates Soure: Own alulations based on the LSMS and data on the nutrient omposition of all food groups onsumed, olleted by the National Centre of Publi Health Protetion in Bulgaria. The figure highlights the ratio of alories onsumed of eah nutrient to the total monthly alories averaged aross perentiles defined on the basis of per adult equivalent expenditures. See text and Table 1 for a desription of perentiles determination. Unfortunately, we do not have aess to reliable pries at either at the household or regional level. Hene, we are fored to extrat prie related information from the available information on unit values total expenditures, divided by total quantities of food items - a problem that we will disuss and try to resolve rigorously in our empirial analysis. However, as a first attempt at making prie related sense of the information available, it is useful to look at the hanges in unit values of key food groups. The information on unit values reported in Table 2 is onsistent with the observed onsumption patterns and provides some tentative explanation of these patterns that goes beyond that of shifting real inomes over time. In partiular, we see that in eah of the years, the unit values of meat signifiantly exeed the unit values of staple foods, whih is onsistent with the apparent greater ability of the riher strata of the population to afford meat ompared to those belonging to the poorer perentiles 4. In addition, the signifiant inrease in the unit value of bread between 1995 and 1997 and the orresponding rise of the share of bread in the food basket of all inome perentiles possibly indiates low elastiity of bread Bulgaria s main staple food - to prie hanges. iven that meat and staple foods (bread and starhes) are the main items in Bulgaria s food basket and that some of the most notieable results in both our desriptive and subsequent empirial analysis are related to these food items, we will 4 Note that this information is onsistent with information on aggregate yearly pries of food items, provided by the National Statistial Institute of Bulgaria. [8]

11 fous on them in the desription of our empirial results. Table 2: Unit values of key food groups, Variable th perentile Bread 0.62 (2.57) 0.86 (0.44) 0.63 (0.15) Starhes 1.33 (0.41) 1.13 (3.13) 0.89 (0.29) Meat 5.03 (1.08) 5.30 (2.81) 3.69 (0.97) Fruit-vegetables 1.17 (0.46) 1.02 (0.61) 1.08 (0.61) Oil-fat 1.98 (0.41) 1.38 (1.01) 1.60 (0.31) Dairies 1.60 (1.45) 1.73 (1.69) 1.52 (0.74) Sweets 1.34 (0.56) 1.29 (0.80) 1.14 (0.94) th perentile Bread 0.62 (2.57) 0.89 (0.59) 0.67 (0.60) Starhes 1.29 (0.36) 0.99 (0.47) 0.92 (0.28) Meat 5.66 (1.25) 6.11 (2.37) 4.23 (1.18) Fruit-vegetables 1.28 (0.48) 1.21 (0.68) 1.03 (0.46) Oil-fat 2.31 (1.19) 1.71 (0.93) 1.71 (0.52) Dairies 1.78 (2.64) 1.63 (0.94) 1.86 (3.07) Sweets 1.30 (0.71) 1.40 (0.95) 1.14 (0.62) 90 th perentile Bread 0.71 (2.44) 0.87 (0.15) 0.75 (0.83) Starhes 1.40 (0.38) 0.95 (0.27) 0.99 (0.49) Meat 6.42 (1.38) 6.78 (1.51) 4.68 (1.72) Fruit-vegetables 1.53 (0.45) 1.19 (0.59) 1.17 (0.60) Oil-fat 2.56 (0.89) 2.24 (1.16) 1.82 (0.62) Dairies 2.10 (2.62) 1.98 (1.13) 2.33 (3.42) Sweets 1.44 (0.70) 1.10 (0.67) 1.26 (0.82) Soure: Own alulations based on the LSMS data set. The values are expressed in real 2001 terms. The numbers in brakets are standard deviations. See text and Table 1 for a desription of perentiles determination. 4. Inome and prie elastiities of food groups The onsumption of speifi food items is shaped by both what is happening to relative pries and inomes. The more prie and inome elasti a food item, the greater the impat of prie and inome hanges on quantities onsumed. As we disussed above, in our ontext the eonomi risis sharply lowered inomes between 1995 and 1997 at a time of rapidly hanging relative pries, with some return to the pre-risis [9]

12 levels by To grasp the impat of the risis on diet we need to examine the hanging prie and inome elastiities over the ourse of Bulgaria s eonomi transition. The main shortoming of our surveys is the absene of information on pries and hene the need to infer responses of households to prie hanges on the basis of information on unit values. For instane, we are likely to observe higher unit values for households whose basket onsists of higher quality items. Unlike the market prie, over whih an individual household does not have any ontrol, the unit value represents a hoie variable, whih is under the ontrol of households. If we are to therefore infer prie elastiities on the basis of unit value data, our results are likely to be tarnished by a simultaneity bias: households hoose both the quantity and the quality of a good and better off households would tend to buy higher quality goods, whose unit value is positively related to total finanial outlays. Figure 2: Inome elastiities inome elastiities, 10 th % inome elastiities, th % inome elastiities, 90 th % Soure: Own alulations based on the LSMS data set. The figure highlights the inome elastiities of bread, starhes and meat for eah perentile of total expenditure and year. See text and Table 1 for a desription of perentiles determination. To orret for the potential simultaneity bias, we use the Crawford et al (2003) methodology of inferring prie effets from unit value information. The method is outlined in Appendix A along with our step-by-step estimations and the full set of prie and inome elastiity results. As indiated earlier in this setion, we report in our main text the inome and prie elastiities of bread, starhes and meat, alulated at the real expenditure levels of the 10 th, th and 90 th perentiles of the population in eah of the available years, where, as indiated earlier, perentiles are fixed at 1995 real terms. The unbiased inome elastiities for eah of the key food groups in the sample are presented in Figure 2, for eah of the years and inome perentiles of interest. We [10]

13 see that during all years and aross all inome perentiles, meat was a luxury good, while bread and starhes were normal goods. However, during the risis, the positive elastiity of meat inreased signifiantly in the ase of the 10 th perentile, inreased only slightly in the ase of the middle perentile and remained almost unhanged for the 90 th perentile. At the same time, the inome elastiity of bread dereased aross all inome perentiles and dereased most dramatially for the 90 th perentile, for whih bread beame an inferior good in These results are onsistent with our observations on hanges in the broad onsumption patterns aross the inome perentiles. Meat is a luxury good; this aounts for our observation from Table 1 that lower inome households during the eonomi risis redue their share of household expenses spent on meat. Likewise, the share of bread in the household expenditures for all inome levels falls, as we expet, given that bread shows up in our estimates as a normal-to-inferior good. However, the inrease by households in the higher inome perentiles of their onsumption of meat a luxury good in the fae of falling inomes must be influened to a larger extent by either hanging relative pries or different responsiveness to pries. This is not obvious when looking at the unit values in Table 2, but beomes muh learer using our estimates. The own prie and ross-prie elastiities of the key food groups over time and aross inome perentiles are summarized in Figure 3. We observe that the own prie elastiities of eah of the food groups inreased dramatially over time. We also observe that the substitutability (i.e. the positive ross-prie elastiity) between staple foods and meat inreased signifiantly during the risis. The onsumer behaviour of those belonging to the higher inome perentiles was haraterised by greater own-prie elastiity of staple foods and lower own-prie elastiity of meat. The lower prie elastiity of meat in the basket of the better off households provides a trustworthy explanation of their ability to sustain and even inrease the onsumption of meat during the risis, when the onsumption of meat by the poor went down. [11]

14 Figure 3: Seleted prie elastiities bread, 10 th % bread, th % bread, 90 th % meat, 10 th perentile meat, th perentile meat, 90 th perentile starhes, 10 th % starhes, th % starhes, 90 th % Soure: Own alulations based on the LSMS data set. The figure highlights the prie elastiities of bread, meat and starhes for eah year and perentile defined on the basis of per adult equivalent expenditures See text and Table 1 for a desription of perentiles determination. 5. Seleted inome and prie elastiities of nutrients The preeding analysis indiated that the food omposition of the Bulgarian diet hanged signifiantly during the risis. The hanges differed aross inome perentiles and were driven by a omplex interplay of hanging real inomes and relative pries, as well as hanging responses to these inomes and pries. Despite the differenes in the hanging food omposition aross inome perentiles, different groups of households experiened similar hanges in nutrient intakes, whih were marked by an inrease in the onsumption of protein and arbohydrates and a derease in the onsumption of fats [12]

15 aross inome groups. Sine these hanges may be indiative of hanging responsiveness of nutrients to pries and inomes, we address this possibility in the next and last step of our analysis. The prie and inome elastiities of nutrients are alulated with the use of the Huang (1996) methodology, whih uses the nutrient omponents of different food groups to onvert the estimated prie and inome elastiities into respetive nutrient elastiities. The methodology and the orresponding full set of nutrient elastiities are reported in Appendix B. The inome elastiities of all maronutrients, highlighted in Figure 4, are large and signifiant. These elastiities hanged signifiantly during the risis, when the elastiity of fat inreased and the elastiity of other maronutrients dereased substantially. The elastiity of protein, arbohydrates and alories dereased the most in the ase of the rihest perentiles, undoubtedly due to the better ability of households belonging to this group to afford preserving their nutrient status. These inome elastiities provide a onvining explanation of the pattern of nutrient hanges that we observe in Figure 1. Figure 4: Inome elastiity of nutrients Soure: Own alulations based on the LSMS and data on the nutrient omposition of all food groups onsumed, olleted by the National Centre of Publi Health Protetion in Bulgaria. The figure highlights the inome elastiities of alories, protein, fat and arbohydrates for eah year and perentile defined on the basis of per adult equivalent expenditures. See text and Table 1 for a desription of perentiles determination. The pattern of prie elastiities of nutrients, highlighted in Figure 5, is also onsistent with the rest of our desriptive statistis and empirial results. We see that, over time, the staple food prie elastiity of all maronutrients inreased signifiantly, while the meat prie elastiity of alories and fats went down between 1995 and This long-term pattern is onsistent with the logi of nutritional transition, haraterised by a permanent shift out of staple foods and arbohydrates into meat and the related [13]

16 proteins and fats. However, the hange of diretion of the meat prie elastiity of arbohydrates during the risis highlights the tendeny to of households to shift out of fats/proteins into arbohydrates in the fae of dramatially inreasing meat pries (and vie versa) in periods of eonomi shoks. Figure 5: Seleted prie elastiities of nutrients alories, 10 th perentile alories, th perentile alories, 90 th perentile proteins, 10 th perentile proteins, th perentile proteins, 90th perentile arbohydrates, 10 th perentile arbohydrates, th perentile arbohydrates, 90 th perentile fats, 90 th perentile fats, 90 th perentile fats, 90 th perentile Soure: Own alulations based on the LSMS and data on the nutrient omposition of all food groups onsumed, olleted by the National Centre of Publi Health Protetion in Bulgaria. The figure highlights the elastiities of alories, arbohydrates, fat and proteins with respet to the pries of bread, meat and starhes for eah year and perentiles defined on the basis of per adult equivalent expenditures. See text and Table 1 for a desription of perentiles determination. [14]

17 6. Conlusion One of the most hallenging researh areas of eonomi and nutrition siene researh is the ability of individuals and households to smooth their onsumption stream during natural disasters and eonomi shoks. While a few nutrition siene studies in the literature witness major hanges in nutritional behaviour during rises, hanges that have potentially important epidemiologial onsequenes (Ivanova et al, 2006), supporters of the permanent inome hypothesis postulate an ability of individuals and households to smooth their nutrient stream even during rises (Dunan and Stillman, 2008). Moreover, the eonomis literature tends to report lower nutrient elastiities than the orresponding food elastiities, highlighting greater willingness of households to ompromise on tastes than nutritional value over short enough periods of time (Berhman and Deolalikar, 1987). Using data olleted with fortuitous timing before, during and after a major maro-finanial risis in Bulgaria we revisited several hypotheses in the eonomis and nutritional literature related to the tendeny of households to smooth their nutritional status over time. We explored the dietary impat of not only falling real inomes in the ontext of hyperinflation and risis, but also of hanging relative pries and the hanging responsiveness of different groups of people to these inomes and pries over six years of fundamental strutural reforms of the eonomy. Our results highlight large and dramatially hanging food and nutrient elastiities, whih hallenge the pereption of household ability to smooth their nutrient stream during eonomi rises and transitions. The trend of these hanges is generally onsistent with the logi nutritional transition and is reversed during the maro-finanial risis. Our analysis has several potential limitations related to the data used. While a rigorous eonometri methodology helps us overome the problem of absene of reliable prie data, this methodology restrits our ability to fous on detailed food items, as opposed to broad food groups. In partiular, due to the need of dividing food expenditures by the orresponding food quantities to obtain unit value observations; we obtain missing values eah time a household does not onsume a partiular food item. To avoid this problem, we group items into seven broad food groups, though this prevents us from getting potentially interesting information on the possible reshuffling of household onsumption aross narrow food ategories. Furthermore, the availability [15]

18 of onsumption data only on a monthly basis prevents us from getting a potentially more valuable story that daily food diaries ould highlight. Despite these shortomings, whih plague the large part of the eonomis literature on nutrition, our paper is a signifiant ontribution to the both the aademi literature and related poliy debate for several important reasons. First, we hallenge a ommon pereption among eonomists that households are able to smooth their onsumption and nutrient status over extended periods of time and during rises. In partiular, we argue that it is important to obtain information on household demand responses to not only hanging real inomes, but also hanging aggregate and relative pries, in order to fully understand household onsumer behaviour. Seond, our results on dramati hanges in prie and inome elastiities of both food groups and nutrients, highlight the limitations of assuming stable elastiities and basing poliy advie on simulations that use household behaviour during a speifi past period of time as a point of departure. [16]

19 Referenes Behrman, J. and Deolalikar, A. (1987). Will developing ountry nutrition improve with inome? A ase study for rural south India Journal of Politial Eonomy, 95(3), Behrman, J. and Deolalikar, A. (1990). Health and nutrition In Chenery, H. and Srinivasan, T. Eds. Handbook of Development Eonomis. Cornia,. (1994). Poverty, food onsumption, and nutrition during the transition to market eonomy in Eastern Europe The Amerian Eonomi Review, 84(2), Papers and Proeedings of the Hundred and Sixth Annual Meeting of the Amerian Eonomi Assoiation, Cox, D and Jimenez, E. (1990). Ahieving soial objetives through private transfers: a review, World Bank Researh Observer, 5(2), Crawford, I., Laisney, F., Preston, I. (2003). Estimation of household demand systems with theoretially ompatible Engel urves and unit value speifiations, Journal of Eonometris, 114, Deaton, A. (1987). Estimation of own and ross-prie elastiities from household survey data. Journal of Eonometris 36, 3-7. Deaton, A. (1988). Quality, quantity and spatial variation of prie: estimating prie elastiities from ross-setional data. Amerian Eonomi Review, 78(3), Deaton, A. (1990). Pries elastiities from survey data: extension and Indonesian results. Journal of Eonometris 44, Deaton, A. (1997). The Analysis of Household Surveys. A Miroeonometri Approah to Development Poliy. The International Bank for Reonstrution and Development. Deaton, A. Mullbauer, J. (1980). Eonomis and onsumer behavior. Cambridge University Press. Dore, A., Adair, L. and Popkin, B. (2003). Low inome Russian families adopt effetive behavioral strategies to maintain dietary stability in times of eonomi risis The Journal of Nutrition, 133, Huang, K. (1996). Nutrient elastiities in a omplete demand system, Amerian Journal of Agriultural Eonomis, 78(1), Ivanova, L. et al. (2006). Dietary hanges during the transition from ommunism to apitalism in Bulgaria Eonomis and Human Biology, 4(1), Kodde, D., Palm F., and Pfann,. (1990). Asymptoti least-squares estimation effiieny onsiderations and appliations, Journal of Applied Eonometris, 5, Lewbel, A. (1993). Stohasti Hiksian Aggregation with an Appliation to grouping goods without separable utility, Annales d Eonomie et de Statistique, 29, Lewbel, A. (1996). Aggregation without separability: a generalized omposite ommodity theorem. Amerian Eonomi Review 86, Lim, Y and Townsend, R (1994). Curreny, transation patterns and onsumption smoothing: theory and measurement in ICRISAT villages. Mimeo, Department of Eonomis, University of Chiago. Paxson, C. (1992). Using weather variability to estimate the response of savings to transitory inome in Thailand, Amerian Eonomi Review, 82, Popkin, B. (1993). Nutritional patterns and transitions, Population and Development Review, 19(1), Popkin, B., Zahoori, N and Baturin, A. (1996). The nutritional status of the elderly in Russia 1992 through 1994, Amerian Journal of Publi Health, 86(3), Rosenzweig, M. and Wolpin, K (1985). Consumption smoothing and the aumulation [17]

20 of durable prodution assets in low-inome ountries: investment in bulloks in India. Journal of Politial Eonomy 101, Sahn, D. Younger, S. and Meyerhoefer, C. (2002). Rural poverty in Bulgaria: harateristis and trends Mimeo, College of Human Eology, Cornell University Ithaa. Stillman, S. (2006). Health and nutrition in East Europe and the former Soviet Union during a deade of transition. A review of the literature. Eonomis and Human Biology, 4(1) Stillman, S. and Thomas, D. (2008). Nutritional status during an eonomi risis: evidene from Russia, Eonomi Journal, 118(531), Townsend, R. (1995). Consumption insurane: an evaluation of risk-bearing systems in low-inome eonomies, Journal of Eonomi Perspetives, 9, Zahoori, N., leiter, K. and Popkin, K. (2001). Monitoring health onditions in the Russian longitudinal monitoring survey Report submitted to the US ageny for international development. Carolina Population Center, University of North Carolina at Chapel Hill. [18]

21 Appendix A: Eonometri methodology A.1. Brief desription of Crawford et al s (2003) methodology The main advantage of the Crawford et al (2003) model that we use to infer prie elastiities from unit value information is that unlike in previous studies it allows us to exploit the expliit links between quantity and unit value in a way that is onsistent with the latest advanes in demand theory, namely the Almost Ideal Demand System (AIDS) approah. For example, previous attempts to explore the simultaneous hoie of quantity and unit value (Deaton, 1987, 1988, 1990, 1997) relied on approximations that were only ompatible with the theoretially unappealing loglinear demand speifiation. In keeping with the rest of the literature, foods are organized in m groups (bread, starhes, meat, et.). Under the assumptions of separability of preferenes and homogeneity, we an define the following relationship: V h V Q [1] where V is the unit value for eah group, Q is the orresponding quantity index and homogeneous prie index (e.g. a Paashe prie index), onstruted based on the assumption of having a onstant struture of relative pries within group. Taking a double logarithm of [1] and given a funtional form for the budget shares therefore have to estimate a onsistent system: w, we X ln V ln ln h X, [2] w X, [3] where X is total expenditures, and is a vetor of group prie levels (the omission of indiates that these parameters refer to all groups). To make the estimation omputationally tratable, a speial funtional form for h is adopted suh that ln V a b lnq ln [4] As for the funtional form of the demand funtion, the model uses the approximate Almost Ideal Demand (AID) model with a loglinear approximation of the log index prie (LA/AID). While the full AID speifiation or its quadrati extension [19]

22 would be preferable, the non-linear form would not be tratable by the within-luster estimation adopted in this method. We attempt to extrat at least some of the information that non-linear inome speifiation would give by estimating prie and inome elastiities for households belonging to different perentiles of total expenditures. Assuming fixed pries for households loated within a luster, the demand funtion for group by household h is: w h where h h h 0 Z α H ln H ln x u [5] H h x h h C h is deflated expenditure, ln x ln X ln P ln X H ln H, H P is a luster prie index with suitably hosen weights, H is the prie of group H in luster. w h Equation (5) an be re-written as: ln where h h h 0 Z α H ln H X u [6] H H. Vetor Z h inludes soio-demographi harateristis and H H other onditioning variables. Following the same logi, the unit value equation beomes: h h h h ln V a0 Z a ln b ln Q v [7] The estimation proeeds under the assumption of independene between observations, whih is restritive, given that the households are grouped by luster and hene by onstrution ommon fators affet the demand for ommodities within the luster. However, under Lewbel s (1993, 1996) assumption of stohasti independene between relative good pries that are allowed to vary aross lusters and the luster prie index, this luster effet an be shown to be innouous (Crawford et al, 2003). The estimation proeeds in three stages. In the first stage, we ompute the within-luster estimates, whih allow the anelling of the unobserved prie effets and retrieving the estimated vetors αˆ and â, and the estimated salars h h h h w w Z α ln X ln X u u h h h h ln V ln V Z a b ln Q ln Q v v ˆ and bˆ. Z [8] Z [9] [20]

23 [21] 2SLS estimation an be used to orret for the potential endogeneity of the variables in h Z. The seond stage onsists of estimating the prie oeffiients H using between-luster information beause the fixed nature of the within luster prie effets has already been used in the first stage. At this stage, we impose the standard homogeneity restrition in demand theory 0 H H (whih implies also an adding-up restrition). Vetor λ is subjet to positive linear homogeneity of the prie index restritions 0 and 1 H H. Sine this is not suffiient to identify the parameters of interest, λ arbitrarily set equal to w, the vetor of average budget shares. The estimation of ˆ (the prie effets in the budget equation for group ) also assumes homosedastiity of the variane of ' ', h h v u and takes into aount the measurement errors in the unit values. The resulting relationship is: C vu C v n n ˆ ˆ ˆ ˆ ' ' λ Ω Ω λ Ω v [10] where n is the size of eah luster H H H u X w ln ln ˆ ˆ 0 α Z ' 1 1, m, with m v a Q b V 1, ln ln ˆ ˆ ln 0 a Z v v v Ω Ω Ω Ω v ˆ ˆ ˆ ˆ 1 ˆ u u u n u V where eah term of Ωˆ is obtained from the first stage residuals. The variane of prie oeffiients (without imposing symmetry) is obtained by the bootstrap proedure. In the third stage, we impose the symmetry, H H, by minimum distane estimation. By using the effiieny arguments of Kodde et al (1990, theorem 5), we

24 minimise only over rather than over and. Prie elastiities are omputed for household belonging to the 10 th, th and e w~ w~ 1.; where 90 th expenditure perentiles using the formula H H H H w ~ and w ~ H represent the budget shares of group and group H respetively. Total expenditure elastiities are also omputed using the formula e 1 w~. A2. Brief desription of our Crawford et al (2003) estimates The set of variables used in our analysis is desribed in table A1. Our speifiations are almost idential (to the extent it is possible for us to ompare the two data sets) to the speifiations used by Crawford et al (2003). We also attempted using the types of instruments suggested by these authors in trying to to aount for the potential endogeneity of total expenditures, onditioning expenditures and durable goods. However, sine the Durbin-Wu-Hausman test rejeted the endogeneity hypothesis for any set of oneivable instruments, we estimate the budget share and unit value regression by OLS. In Tables A2-A4, we report the budget share estimates from the first stage of the methodology desribed in A.1. We see that during all years, total expenditures have a negative impat on the shares onsumed of bread, starhes, fats and oils and dairy produts and a positive impat on the shares onsumed of meat, fruit and vegetables and sweets. These results are onsistent with our desriptive statistis on the greater proportions of the latter types of food items in the baskets of riher households. The rest of our results are onsistent with any onventional assumptions. In so far as the unit value results (Tables A5-A7) are onerned, the most valid result in our ase is the signifiant effet of the food quantity variable in the unit value regression. This signifiant effet onfirms the validity of our hoie of methodology. The rest of the appendix highlights our elastiity results, the most interesting of whih we have disussed in the main body of the paper. [22]

25 Table A1: definition of variables and desription of goods Variables Definition Mother tongue of head Mother tongue of the head; 1 if Bulgarian, 0 otherwise Age of head Age of the head in years Age of head 2 /100 Age of the head square divided by 100 Male head Sex of he head: 1 if Male, 0 otherwise No shool/elementary eduation of head No studies, day-are, elementary or preshool of the head: 1 if yes; 0 otherwise Seondary / middle general eduation of head Middle shool or general seondary eduation of the head: 1 if yes; 0 otherwise Tehnial /voational eduation of head Tehnial or voational seondary eduation, or other oupation-speifi eduation after seondary of the head, inlude ollege (e.g. nurses, polie): 1 if yes; 0 otherwise University of head University eduation of the head: 1 if yes; 0 otherwise Married head Marital situation of the head: 1 if married, 0 otherwise Urban Residene loation; 1 if urban, 0 otherwise Household size Total number of household members Owner-oupier Owner oupies the house: 1 if yes, 0 otherwise Spae per person Area of the dwelling in sqm/ divided by total number of persons oupying the dwelling Car or motoryle Have a ar or motoryle: 1 if yes; 0 otherwise Freezer Have a freezer: 1 if yes; 0 otherwise Automati washing mahine Have an automati washing mahine : 1 if yes; 0 otherwise Total number of leisure durables Total number of leisure durables (olour TV, video reorder, paraboli antenna, stereo, radio, personal omputer) ln(total expenditures) log total expenditures of food ln(tobao) log expenditures of tobao ( igarettes and tobao) ln(hygiene) log expenditures of hygiene produts and servie and personal produts (toilet soap, luxury toilette soap, shampoo, onditioner, shampoo and onditioner, hand ream, hydrating lotion, fae ream, leansing ream, deodorant, tooth paste, hair ut, hygieni servies, purhased wash soaps, value of made soaps, washing powder, bleah, dishwashing soap, other washers, other leaners, hild are-baby sitting) ln(energy) log expenditures of energy ( distrit heating, eletriity, gas, oal, oil, wood, other energy soures) ln(transport and ommuniation) log expenditures of transport and ommuniation (gas and oil, ar servie, maintenane, taxi, tram and buses, trains-outside ity, mail servie, telephone) ln(rereation) log expenditures of rereation (ultural ativities, books, newspapers, stationery, membership fees, pet food and expenses) ln(housing) log expenditures of housing (water and rent) ln(loths and shoes) log expenditures of loths and shoes (textile, loths, and shoes) ln(furniture) log expenditures of furniture (kithen equipment, home repairs, furniture, bedding, sheets, others) ln(health) log expenditures of health ( dentist, dotor, hospital/sanatorium, mediines, mediations, optial equipment, osmetis, others) No toba No expenditures of igarettes and tobao: 1 if no expenditures, 0 otherwise No hygiene No expenditures of hygiene and personal produts: 1 if no expenditures, 0 otherwise No energy No expenditures of energy: 1 if no expenditures, 0 otherwise No transport and ommuniation No expenditures of transport and ommuniation: 1 if no expenditures, 0 otherwise No rereation No expenditures of rereation: 1 if no expenditures, 0 otherwise No housing No expenditures of housing: 1 if no expenditures, 0 otherwise No loths and shoes No expenditures of loths and shoes: 1 if no expenditures, 0 otherwise No furniture No expenditures of furniture: 1 if no expenditures, 0 otherwise No health No expenditures of health: 1 if no expenditures, 0 otherwise Share bread Share of expenditures of bread Share starhes Share of expenditures of starhes (maize flour, wheat flour, pasta, rie, beans, potatoes, arrots, lentils, sweet peas) Share vegetables and fruits Share of expenditures of vegetables and fruits (tomatoes, eggplants, onions, squash vegetables, leafy vegetables, peppers, abbage, uumbers, oranges, apples, pears, bananas, nuts, grapes, watermelon, melon, strawberries, herries, anned fruits, and anned vegetables) Share meat Share of expenditures of meat (veal and beef, pork, lamb, hiken/birds, sausages/sala, baon, anned meat, ground meat) Share fats and oils Share of expenditures of fats and oils (butter, margarine, lard, olive oil, vegetable oil,) Share dairy Share of expenditures of dairy (fresh milk, white heese, yellow heese, yogurt, powder milk, eggs) Share sweets Share of expenditures of sweets (sugar, jam, honey ) ln(quantity) log quantity (of eah food) Other foods Fresh fish, frozen fish, anned fish, ondiments and spies (salt, spies, offee, tea, others), drinks (water, wine, beer, Bulgarian liquor, hard liquors, other drinks), prepared food (not at home) [23]

26 Table A2: Engel urves in 1995 Variable 1995 Bread Starhes Veget -and-fruits Meat Fats and oils Dairy Sweets Coef Std-err Coef Std-err Coef Std-err Coef Std-err Coef Std-err Coef Std-err Coef Std-err Household harateristis Mother tongue of head Age of head Age of head square/ Sex of head Married head Seondary and middle general eduation of head Tehnial and voational eduation of head University of head Urban Household size Owner-oupier Spae per person Durable ownership Car or motoryle Freezer Automati washing mahine Total number of leisure durables Conditioning expenditures ln(toba) ln(hygiene) ln(energy) ln(transport and ommuniation) ln(rereation) ln(housing) ln(loths and shoes) ln(furniture) ln(health) No toba No hygiene No energy No transport and ommuniation No rereation No housing No loths and shoes No furniture No health ln(total expenditures) R-square All oeffiients, standard errors and R-square are multiplied by 100. Bold entries orrespond to 5% or 1% signifiane level. [24]