The response of consumption to income shocks: evidence from the Indian trade liberalization
2011
S. Tandon | M. Landes
In the past two decades, India has enacted a number of policies, including a dramatic trade liberalisation, that in part aim to reduce the incidence of both poverty and food insecurity. This study focuses on how households employed in industries exposed to large tariff decreases cope with the negative income shocks caused by the increased import competition.The document reveals the following findings: overall consumption did decrease due to shocks caused by the tariff decreases, but this pattern was not uniform across different food groups households more hurt by the reform did not change their consumption of cereals, but decreased their consumption of all other food items although this coping mechanism helped maintain overall levels of calorie consumption, diet diversity and the associated benefits were sacrificed <br />Accordingly, the paper suggests that households effectively mitigated the income shock in terms of maintaining a minimum level of consumption. The authors figure that one possible reason as to why cereals consumption did not decrease in response to income shocks might be the result of the presence of food assistance, which sells subsidised rice and grains. <br />The document draws two primary conclusions: first, the substitution towards a less diversified diet that is more reliant on cereals could help to explain the poor nutritional outcomes in the country amongst the poorest households second, the estimates in the paper help illuminate the potential short to medium-run impacts trade reforms have on food security <br />
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