Food, fuel, and facts: Distributional effects of external shocks

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ACDE Seminar
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We study the distributional implications of rising global food and oil prices using household panel data on consumption and income from India. Consumption inequality in India rises persistently following a positive shock to global food and fuel prices. Using a panel local projection framework, we find that lower income deciles are hit harder by a rise in food prices, whereas a rise in fuel prices hits both the lower and the middle-income deciles. These results continue to hold in a panel IV local projection framework, where we use identified oil supply and food commodity shocks as instruments. We further investigate the role of real income and relative price effects in generating the heterogeneous consumption effects.
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