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First of all, hats off to Anik to initiate
the whole proceedings with a nice economic research paper. While
reading the paper I was wondering few things. Although it is
well acknowledged that a simple econometric methodology is
adopted in the study, however, I feel some concern with this
methodology as the discussion is largely driven by the
regression results. Firstly, as the dependent variable is in
real term, the explanatory variables need to be converted into
real ones using CPI. Secondly, consumption is a function of
permanent income and HH total expenditure rather than its total
income is regarded as its permanent income. Additionally, the
measurement of expenditure is far more accurate than that of
income. Thirdly, in cross sectional regression including the
price variable will raise some question as raised by Farida apa.
And inclusion of two correlated price variables will every
likely cause some multi-collinearity problem. If you see the
seasonality of the price of rice and potato, clearly demand for
potato has a strong seasonal component built into it, whereas
demand for rice is more stable over time. So, the sample period
chosen has got some implication on the demand for potato. One
way to get out of this problem seems to me is estimating the
demand for rice. Now, having done all the exercise the bottom
line is that the potato price needs to be stabilized throughout
the year to ensure food security. However, it is uncertain that
stabilization of potato price will do the job as the cross
elasticity is not very high in magnitude in the backdrop of low
current level of consumption of potato. One way to strengthen
this policy option is by getting a large cross elasticity of
calorie substitution. |