The Income Elasticity for Nutrition: Evidence from Unconditional Cash Transfers in Kenya

Estimates of the effect of budget changes on food and nutrition for poor households is an important input to the design of efficient programs to reduce poverty and improve nutrition. Yet, good such estimates are challenging to obtain from observational data alone because of potential endogeneity issues. In this paper we estimate the expenditure elasticitity of food using exogenous variation in budget from two unconditional cash transfer programs in rural Kenya, combined with detailed data on food expenditure, nutrition and prices. Our data allow us to estimate a demand system, using the randomized cash transfers as an instrument for total expenditure, and taking into account potential general equilibrium effects of the program on prices. We find that the average income elasticity of food expenditure is 0.87, and of calorie consumption is 0.67. Although these elasticities are higher than those reported in some of the previous studies, they are significantly lower than those obtained using a non-experimental analysis in our context.