Engel Curves and Equivalence Scales for Bangladesh

Abstract

This paper examines the Engel curves for major expenditure categories in Bangladesh with a particular attention to their specifications. Our semi-parametric model indicates a quadratic Engel curve for most of the expenditure categories, including food, and thus provides additional evidence to the argument for a quadratic food Engel curve for developing countries. As household expenditure increases, expenditures on some food categories like protein and non-home-made food increase at a faster rate, resulting in a quadratic food Engel curve. Our analysis demonstrates that knowledge about the correct specification of the Engel curves has important implications for modeling household responses to the negative income shocks. Such knowledge can be particularly useful for the developing countries where governments aim to protect the low-income households from such shocks.

Keywords: Engel curve, semi-parametric estimation, partial linear model, equivalence scale

JEL Classification: D11, O21