Recent studies on income and nutrition suggest that income growth plays either a small or even a negative role in influencing diet quality in China, especially for low income households. Such arguments cast doubt on the conventional reliance on income as a policy tool to improve public health through better diets. They, however, have been drawn mostly from analysis of income effect on nutrient intakes and diet adequacy. No research has been done on how income affects diet diversity in China, despite its unambiguous health benefits. This paper tests if income growth improves diet diversity, and, thus, can enhance public health in China, using data from the China Health and Nutrition Survey 2004-2009. For the first time, potential endogeneity of income, most likely due to omitted variables, is addressed in the estimation of income effect on diet diversity by instrumental variables. This study finds that, regardless of estimation methods, income effect is significant and positive, but diminishes along the income distribution and over time. When endogeneity of income is controlled in 2SLS estimation, estimated income effect is considerably larger than the corresponding OLS estimate. OLS regression shows that education has significant and positive effects on diet diversity, with larger effects at higher education levels. Nevertheless, education effects diminish in terms of both magnitude and statistical significance in the 2SLS estimation. The stark differences between OLS and 2SLS estimates suggest that it is important to account for endogeneity of income. The OLS estimation seemingly understates income effects and overstates education effects. It, therefore, might mislead resource allocation in designing food and health policies.
