Quadratic Food Engel Curves with Measurement Error: Evidence from a Budget Survey

In this paper we estimate quadratic food Engel curves with measurement error using the 1994 Ethiopian Urban Household Budget Survey. In sharp contrast to the findings from developed countries, food share is found to increase with expenditure, and only starts to decline after some threshold level of expenditure. We establish the robustness of this inverted-U relationship by estimating a more flexible semiparametric model that corrects for the endogeneity of expenditure. The potential policy distortion that may result from neglecting the problem of measurement error in the estimation of Engel curves is also discussed.