Food expenditure responses to income/expenditure shocks in rural China

The purpose of this paper is to examine the impacts of large income and expenditure shocks on household food expenditures and determines whether the impacts of large shocks differ among households, especially low-income households.

The study’s data are drawn from a household survey conducted in rural China. Multivariate analysis examines the impacts of large income and expenditure shocks on food expenditures.

The impacts of large positive income shocks on food expenditure are moderate. However, households reduce their per capita food expenditures within a range of about 25-30 percent after suffering large negative shocks. The greatest impact is found for shocks where expenditures more than double, followed by the impact of shocks where income declines by more than half. Moreover, food expenditures among low-income households are much more sensitive to large negative income and expenditure shocks. The paper concludes with policy implications.

This is the first Chinese study to empirically examine the impacts of different income and expenditure shocks on household food expenditures. The results have important implications for smoothing households’ food consumption after they suffer from shocks.