Affluence and Food: A Simple Way to Infer Incomes - The University ...

APPENDIXAll data are from the OECD (2004) and refer to 42 countries that were members of the OECD in2002. To describe the data, leticp be the price of consumer good i ( i = 1, …,12)in country c ( c 1, , 42)= … ,expressed in terms of the currency of that country, andqicbe the corresponding per capita quantity12consumed. Thus, picq icis the expenditure on i and if we write Mc = ∑ i=1 picqicfor total consumptionexpenditure, wic = picqic Mcis then the share of the total devoted to i, with ∑ 12i=1wic= 1. These wicareknown as “budget shares”. Lines 2-13 of Table 1.1 of OECD (2004) contain p q ( population of c)icic× , fromwhich the budget shares can be derived. These are given in Table A1. Here countries are ranked in terms ofdecreasing per capita affluence as measured by the volume of total consumption, which is described below.The second entry in column 2 of Table A1, for example, tells us that Americans devote 6.4 percent of theirtotal consumption expenditure to food. Details of the 12 commodities are as follows:DescriptionFood and non-alcoholic beveragesAlcoholic beverages, tobacco and narcoticsClothing and footwearHousing, water, electricity, gas and other fuelsHousehold furnishings, equip. and maintenanceHealthTransportCommunicationRecreation and cultureEducationRestaurants and hotelsMiscellaneous goods and servicesAbbreviationFoodAlcohol & tobaccoClothingHousingDurablesHealthTransportCommRecreationEducationRestaurantsOtherLetp ∗ibe the “world” price of good i, defined as the OECD average, expressed in terms of USdollars. As one US dollar buys1 p ∗ iunits of commodity i at the world price, the ratio pic p ∗ iis interpreted asthe domestic-currency cost of a US dollar’s worth of this good. Accordingly, we shall refer to picp ∗ ias the“purchasing-power-parity (PPP) price” of good i. Table A2, from lines 2-13 of Table 1.2 of OECD (2004),give the price ratios p icp ∗ . To illustrate, consider the second entry in column 2 of Table A2, 0.95. Thisimeans that the volume of food that can be purchased with one US dollar at average OECD prices costs$US0.95 in the US, implying that food is 5 percent cheaper in the US than in the OECD in general.13