(Luận văn thạc sĩ) effect of income on nutrient intake case of households in the southeast region of vietnam 2000

UNIVERSITY OF ECONOMICS

INSTITUTE OF SOCIAL STUDIES

HO CHI MINH CITY

THE HAGUE

Vietnamese-Dutch Project for M.A Program in
Development Economics

EFFECT OF INCOME ON NUTRIENT INTAKE
THE CASE OF HOUSEHOLDS IN THE SOUTHEAST
REGION OF VIETNAM- 2000

A thesis presented by

Nguyen Phuong Chi
In Partial Fulfillment of the Requirements for Obtaining the Degree of

MASTER OF ARTS IN ECONOMICS OF DEVELOPMENT

Supervisors

M.Sc. Nguyen Hun Dung
Dr. Le Bach Mai

THU

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CERTIFICATION

" I certify that the substance of this dissertation has not already been submitted for
any degree and is not being currently submitted for any other degree.

I certify that to the best of my knowledge any help received in preparing this
dissertation, and all sources used, have been acknowledged in this dissertation."


ACKNOWLEDGEMENTS
First of all, I would like to express my acknowledgement to Dutch Lady Vietnam
Food and Beverage Company for their sponsorship to my trip to the National
Institution of Nutrition in Hanoi to finish this thesis. I also convey my gratitude to
the University of Economics - Ho Chi Minh City, the Institute of Social Studies The Hague and the National Institution ofNutrition for creating such good chance
for me to do the research.

I am deeply indebted to my supervisors, Mr. Kees Voogd, the Innovation Manager
and Mr. Nguyen Huu Thiet, the Human Resource Manager of Dutch Lady Vietnam
Food and Beverage Company; Mr. Nguyen Huu Dung, the coordinator of the MDE
program; Dr. Nguyen Cong Khan, the director of the National Institution of
Nutrition, Dr. Le Bach Mai, the manager of the Public Nutrition Department and

Dr. Vu Quynh Hoa, staff of the National Institution of Nutrition for their valuable
instructions, comments and suggestions during the process of writing the report.
Finally, I wish to express my thanks to my parents, relatives and friends for their
spiritual encouragement and material support. Without those sources, the thesis
would have been made impossible.
I alone bear full responsibility for any errors remaining in the report.

Nguyen Phuong Chi
Ho Chi Minh City, August 2003


ABSTRACT

It is a fact that 75 percent undernourished children lives in India, Bangladesh,

Pakistan, Indonesia, Nigeria and Vietnam (Foster and Leathers, 1999). Still,
developed countries like European and the United States give a lot of attention to
this problem. They increase incomes of the poor and food production per person to
avoid malnutrition (Wolfe and Behrman, 1983). Unfortunately, Engel's law stated
that as incomes grow, people would reduce the food spending proportion in their
budget and increase the budget share for non-food commodities. Besides, people
often consume foods to suit their tastes and habits rather than to get more calories
in their choice.
The thesis examines the effect of income on nutrient intake of households in the
Southeast region of Vietnam in 2000. All the data is taken from The National Food
and Nutrition Survey of the National Institution of Nutrition (NIN) in 2000.
Regression result analyzes show that there is a positive effect of expenditure on
calorie intake but the effect is rather low. People have shifted their spending to
animal foods such as meat, eggs, milk and milk products. Gender does not have
any correlation with calorie intake.

2


TABLE OF CONTENTS
CERTIFICATION ................................................................................................... 1
ACKNOWLEDGEMENTS ....................................................... ~ ............................ !
ABSTRACT .............................................................................................................. 2
TABLE OF CONTENTS ......................................................................................... 3
LIST OF TABLES ................................................................................................... 6
LIST OF FIGURES ................................................................................................. 7
ACRONYMS AND ABBREVIATIONS ................................................................ 8

CHAPTER 1: INTRODUCTION ........................................................................... 9

1.1

PROBLEM STATEMENT

1.2

OBJECTIVES OF THE THESIS

11

1.3

RESEARCH QUESTIONS

11

1.4

RESEARCH HYPOTHESIS

12

1.5

RESEARCH METHODOLOGY

12

1.6

THE ORGANIZATION OF THE THESIS

13

9

CHAPTER 2: LITERATURE REVIEW AND EMPIRICAL STUDIES ......... 15

2.1

CONCEPTS OF NUTRIENT INTAKE AND THE HOUSEHOLD

15

2.1.1

NUTRIENT INTAKE ............................................................................. 15

2.1.2

HOUSEHOLD ...................................................................................... 16

2.1.3

HOUSEHOLD INCOME ........................................................................ 16

2.1.4

l-IOUSEHOLD HEADSHIP ..................................................................... 17

2.2

17

LITERATURE REVIEW

THE THEORY OF CONSUMER CHOICE ................................................. 18

2.2.1

2. 2.1.1

The Traditional Model of Consumer Behaviour ........................... 18

2.2.1.1.1 Assumptions of the model ........................................................ 18

2.2.1.1.2. The Budget Constraint and The Budget Line .......................... 19
2.2.1.1.3 Indifference Curves ................................................................... 19
2.2.1.1.4 Income effect on Consumption ................................................. 20

2.2.1.2. Criticisms on The Theory ofConsumer Choice ............................... 22
2.2.1.2.1. Advantages of The Theory of Consumer Choice .................... 22
2.2.1.2.2. Disadvantages ofthe Theory of Consumer Choice ................. 23
2.2.2 MODELS OF INTRA-HOUSEHOLD ALLOCATION .......................................... 24

3


2.2.2.1 The Unitary Model ...........................................................................·.24
2.2.2.2 The Collective Model ........................................................................ 25

2.2.3 EQUIVALENT LAWS OF ECONOMICS .......................................................... 26
2.2.3.1 Engel's Law ...................................................................................... 27
2.2.3.2 Bennett's Law.................................................................................... 27
2. 2. 3. 3 ·Slutsky's Law ........................................................ :........................... 28

2.2.4 MEASUREMENT ERRORS OF NUTRIENT INTAKE ......................................... 29
2.3

EMPIRICAL STUDIES

30

2.3.1 NUTRIENT INTAKE AND INCOME ............................................................... 30
2. 3.1.1 Studies with low calorie income elasticities ..................................... 3 0

2.3.1.1.1 Study ofBehrman and Wolfe (1983) ........................................ 30
2.3.1.1.2 The study ofBehrman and Deolalikar (1987) ......................... .31
2.3.1.1.3 The study ofTimmer and Alderman (1979) ............................. 32
2. 3.1. 2 Studies with high calorie income elasticities .................................... 3 3

2.3.1.2.1 The study of Pitt (1983) ............................................................ 33
2.3.1.2.2 The study ofPinstrup-Andersen and Caicedo (1978) ............... 34
2.3.2 NUTRIENT INTAKE AND HOUSEHOLD CHARACTERISTICS .......................... 35
2.3.2.1 Nutrient intake and household size and demographic structure ...... 36
2. 3. 2. 2 Calorie intake and household head .................................................. 3 7
2. 3. 2. 3 Calorie intake and female education ................................................ 38

2.4

38

CONCLUSION

CHAPTER 3:

SOCIAL

CONSUMPTION

AND

AND

ECONOMICAL

NUTRIENT

INTAKE

IN

SITUATION,
THE

FOOD

SOUTHEAST

REGION OF VIETNAM: GENERAL PICTURE ............................................. 40

3.1

SOCIAL AND ECONOMICAL SITUATION IN THE SOUTHEAST REGION OF
VIETNAM
40

3.2
FOOD AND NUTRITION SITUATION IN THE SOUTHEAST REGION OF
VIETNAM
41
3.3
SOME
NUTRITIONAL
PROGRAMS
MALNUTRITION PROBLEMS IN VIETNAM

3.4

CONCLUSIONS

IMPLEMENTED

TO

SOLVE
43
45

CHAPTER 4: ANALYTICAL FRAMEWORK AND RESEARCH METHOD

••.••••••.•.•••••.••••••••••••.••••••••••••••••.•.•.••••••••.•.••.••••••.•••••.•••••••••••••••••••••.••••••••••••••••••••••••••••. 46

46

4.1 ANALYTICAL FRAMEWORK

4.1.1 TRANSFORMING CONCEPTS INTO VARIABLES .......................................... .46
4.1.1.1 The nutrient intake ............................................................................ 46
4


4.1.1.2 Household income ............................................................................. 47
4.1.1.3 Household characteristics ................................................................ 48
4.1.2 MODEL SPECIFICATION ............................ ·................................................ 51

4.2

~ESEARCH METHOD

52

4.2.1 DATA REQUIREMENT ................................................................................ 52
4.2.2 DATA SOURCE ................................................................. : ....................... .'53
4.2.3 SAMPLE SELECTION ....................................................... , .......................... 53
4.2.3.1 The surveysites ................................................................................. 53
4.2.3.2 Sample size and sampling ........... ,..................................................... 53
4.2.4 METHOD OF ANALYZING DATA ................................................................ 54

CHAPTER 5: EFFECTS OF INCOME ON NUTRIENT INTAKE OF
HOUSEHOLDS IN THE SOUTHEAST REGION OF VIETNAM IN 2000 ... 55

5.1 FOOD CONSUMPTION PATTERN, NUTRIENT INTAKE AND HOUSEHOLD
CHARACTERISTICS
55
5.1.1 FOOD CONSUMPTION PATTERN ............... , ................................................. 55
5.1.2 NUTRIENT INTAKE .................................................................................... 58
5 .1.3 HOUSEHOLD EXPENDITURE ...................................................................... 60
5.1.4 HOUSEHOLD CHARACTERISTICS ............................................................... 61
5.1.4.1 Household size .................................................................................. 61
5.1.4.2 Household head ................................................................................ 62
5.1. 4. 3 Education .......................................................................................... 63

5.2 REGRESSION RESULTS

64

5.2.1 DESCRIPTION OF VARIABLES .................................................................... 64
5.2.2

RELATIONSHIP BETWEEN CALORIE INTAKE AND TOTAL EXPENDITURE,

CALORIE INTAKE AND ENERGY ORIGINATED FROM ANIMAL PRODUCTS ............. 67

5. 2. 2.1 Calories per capita and total expenditure of household................... 67 ·
5. 2. 2. 2 Calories per capita and calories originated from animal foods ....... 68
5.2.3

REGRESSION RESULTS ....................................................................... 70

CHAPTER 6: CONCLUSIONS AND POLICY RECOMMENDATIONS ..... 77

APPENDIX 1 .......................................................................................................... 81
APPENDIX2 .......................................................................................................... 83
BI~LIOGRAPHY ................................................................................................. ~87

5


LIST OF TABLES
Table 2.1 : Income and expenditure elasticities of calorie demand ........................... 3 6
Table 3.1: Mean share (%) of food groups in total calories consumed by a
household by regions ····:······························································:............................ 43
Table 4.1: List of variables and expected signs in relation with calorie intake ........ 51
Table 4.2: Four forms of commonly used Engel functions ..................................... .52
Table 4.3: Number of households by city/ provinces in the Southeast region ......... 55
Table 5.1: Major food group- average intake (grams/household/day) .................... 57

Table 5.2: Food consumption pattern by household expenditure quintiles in the
Southeast region (grams/household/day) .................................................................. 59
Table 5.3: Energy composition in the Southeast region and the whole country ....... 60
Table 5.4: Highest diploma obtained by gender in the Southeast region in 2000 .... 64
Table 5.5: Percentage of female per household who gets the highest diploma by
expenditure quintile in the Southeast regionin 2000 ................................................ 65
Table 5.6: Summary statistics ................................................................................... 66
Table 5. 7: Distribution of quantitative variables .................................................... 667
Table 5.8: Calorie groups by mean total expenditure per household ....................... 68
Table 5.9: Daily calories per capita originated from animal foods by calorie groups
and expenditure quintiles .......................................................................................... 70
Table A2.1: Multicollinearity test.. ........................................................................... 84
Table A2.2: Heterokedasticity test ........................................................................... 85
Table A2.3: Functional form test ............................................................................. 85
Table A2.4: Autocorrelation test .............................................................................. 86

6


LIST OF FIGURES
Figure 2.1: Matching Consumer Desires with Available Consumer Choices .......... 21
Figure 2.2: Income-Consumption curve and its form .............................................. 22
Figure 3.1 : Percentage of children under five suffering from mild underweitght and
stunting (malnutrition level 1) ......................................................................... .44
·Figure 5.1: Average consumption level of other foods in the Southeast region
(grams/household/day) ...................................................................................... 58
Figure 5.2: Total expenditure and food expenditure by quintiles in the Southeast
region (1 000 dongs/person/month) ................................................................... 62
Figure 5.3: Histogram of quantitative variables with normal curve ...................... 667
Figure 5.4: The relationship between daily calories per capita and total expenditure

per household ................................................................................................... 69
Figure 5.5: The relationship between calories per capita and calories from animal
foods .................................................................................................................. 70
Figure A2.1: Histogram of residual from the regression on linear function with
unstandardized residual ..................................................................................... 87
Figure A2.2: Histogram of residual from the regression on linear function with
standardized residual ......................................................................................... 87

7


ACRONYMS AND ABBREVIATIONS
ADB

Asian Development Bank

BMI

Body Mass Index

BRVT

BaRia- Vung Tau

em

Centimeters

FAO

Food and Agriculture Organization

GDP

Gross Domestic Product

GSO

General Statistical Office

HCMC

Ho Chi Minh City

kcal

Kilocalories

NGO

Non Governmental Organization

NIN

National Institution ofNutrition

OLS

Ordinary Least Squares

PEM

Protein Energy Malnutrition

SPSS

Statistical Package for the Social Sciences

UN

United Nations

us

United States

UNICEF

United Nations International Children's Fund

VER

Vietnam Economic Review

VSED

Vietnam's Socio-Economic Development

WB

World Bank

8


Chapter 1: INTRODUCTION

1.1

PROBLEM STATEMENT

When human beings become the subject of development in any certain country,
nutrition then becomes a great concern. According to the Asian Development Bank
(ADB) (2001: 26), 'Nutrition plays a very important role in welfare, and good
nutrition is essential for good, long-term health for both children and adults'. A
person with better nutrition and health has more capabilities to live, study, work
and enjoy his life than ill people (Ingham, 1993). Socially, a country with a
nourished population may yield a good chance to improve anthropometrical as well
as intellectual indicators of its present and future generations (Behrman and
Deolalikar, 1988), to increase output due to faster productivity (Ray, 1998) and to
meet its developmental goals such as higher income and life expectancy (Ingham,
1993).
Once a person's income increases, his nutritional status may be improved
accordingly (Ray, 1998). Statistics of FAO (1998) show a substantial gap between
developed and developing countries in average daily kilocalorie (kcal) availability
per capita. An average daily energy supply per capita of developed countries is
3,340 kcal, while that indicator of the poorest countries is just 2,060 kcal. This
seems consistent with the idea of the WB in its World Development Report in 1980
that 'the most efficient long-term policies are those that raise the incomes of the
poor, and those that raise food production per person' (cited in Wolfe and Behrman,

1983: 525). However, income itself is not enough to reflect the availability of each
good in the market and how much of each good that a person can afford and prefer
to consume (Dasgupta, 1995). As a result, whether income is an important
determinant of nutrition is still in debate (Wolfe and Behrman, 1983).
According to Engel's law, when people earn additional income, they tend to spend
more on non-food commodities and less on food items (Gillis et al., 1996).

9


Moreover, as the income of people goes up, they often prefer foods with higher
quality rather than higher calorie content. The effects of income in the hands of
men and in those of women are also different. Women tend to care more about
health and nutrition of all members in the household, especially for children,
compare to men (King and Hill, ed., 1993).
Over the last decade, Vietnam has made good results in human development such
as income growth and poverty reduction (WB, 2001 b). From 1993 to 1998, GDP
per capita grew on average 8.9 percent per year. Poverty rate, which is measured by
2,100 calories per day as stated by the WB, reduced from 55 to 37 percent during
the same period.
According to reports from UNICEF in 1996 (stated in Foster and Leathers, 1999),
Vietnam is on the list of 50 most seriously undernourished countries by three
different measures, i.e. daily per capita calorie supplies as a percent of
requirements, under-five mortality rate per 1000 live births and percent of children
underweight. In 1999, the percentage of undernourished people in total population
in Vietnam is 19 percent.
Although the living standards of Vietnamese households have been improved over
the last decade, their nutritional status is still in problem. According to ADB
(200 1), Vietnamese households may spend their additional income on food without
referring to richer calorie content or on other non-food commodities. Besides, some

recent empirical studies show that income elasticities of nutrient intake are low in
poor countries (Ravallion, 1990). Therefore, this thesis will examine the effects of
income change on calorie intake by using a large household-level survey on food
consumption, incomes and other household characteristics of Vietnam in 2000
conducted by the NIN. In particular, data from the Southeast region will be focused
for analyzing.

10


1.2

OBJECTIVES OF THE THESIS

Health and nutrition have been of great concern m Vietnam for a long time.
Together with better living standards and higher income, nutritional status of
people should be improved. Therefore, it is important to kt1ow the impact of
income change on nutrient intake of people so that the government can apply
efficient policies to solve this problem. The study will focus on this situation in the
Southeast region that achieved the highest speed of income growth in Vietnam ..
1.3

RESEARCH QUESTIONS

People tend to care about their nutrition based on their preferences over its
characteristics (Dasgupta, 1995). Even though people are undernourished, they
would not spend the whole income for food consumption. Also, food patterns of
people depend on many non-food factors such as taste, cultural or household
characteristics that may outweigh interests on nutritional contents (Deaton, 1997).
Besides, malnutrition often damages welfare of people more seriously than

~hey

used to think. There is a trap: weak people cannot work and without working, they
lack ability to improve their malnutrition (Ray, 1998). Thus, nutritional value is the
'first necessity' that may be considered as conditions for other needs to satisfy
(Deaton, 1997: 211).
Recent achievements in economic growth in Vietnam have increased substantially
income of people. However, the increase in quantity alone is not enough. It is the
quality of· such increase to be important, too. Whether additional income
contributes to welfare of people is really a matter. This thesis tries to examine the
impact of income on nutrient intake of people, so it may help policymakers and
food suppliers to have a real picture of nutrient consumption of people. Based on
this, policymakers and food suppliers may have different strategies to influence the
nu~rient

consumption of people in the way that improve their health and

productivity. In detail, the thesis plans to address the following question:

II


(1)

Is there a positive effect of income level of households on daily calorie
intake per capita of households in the Southeast region of Vietnam in 2000?

Besides, in the context that Vietnamese females play an important role on food
preparation and consumption in the household, the thesis tries to. answer two more

questions:

(2)

Is there a positive effect of female head on daily calorie intake per capita of
households?

(3)

Is there a positive effect of highest level of formal education of female
adults on daily calorie intake per capita of households?

1.4

RESEARCH HYPOTHESIS

Because factors such as income and female characteristics seem to be
complementary for nutrition status of a person based on many empirical studies,
the following relationships are hypothesized for testing:

(1)

There is a positive effect of income on daily calorie intake per capita of
households in the Southeast region of Vietnam in 2000.

(2)

There is a positive effect of female head on daily calorie intake per capita of
households.

(3)

There is a positive effect of the highest level of formal education of female
adult on daily calorie intake per capita of households.

1.5

RESEARCH METHODOLOGY

This thesis studies the impacts of income, female headship and education on calorie
intake of households in the Southeast region of Vietnam in 2000 by using the
household-level data set done by the NIN. The tertiary and secondary data (data

12


and reports from specialized organizations in Vietnam and abroad) will be used to
analyze the current food pattern of Vietnamese households and to compare it with
others in some developing countries. Besides, some specialized documents will be
used to correctly evaluate impacts of the above factors on calorie intake of
households.
The research questions will be handled by using descriptive statistics, quantitative
analyses and OLS regression to analyze factors affecting calor1e intake. The first
approach analyzes the distribution of dependent and independent variables, and
then studies the relationships of calorie per capita per day with expenditure, female
headship and education via using numerical summaries and graphs. The effects of
all factors in determining calorie intake are estimated by a multivariate model of
calorie demand. Finally, based on the regression model, results will be interpreted
for policy recommendations.
1.6

THE ORGANIZATION OF THE THESIS

The thesis consists of six chapters, annexes and a bibliography. The outline is as
follows:
Chapter 1 presents the introduction, including the problem statement, research
questions and hypothesis, research methodology, and the organizati<;m of the thesis.

Chapter 2 provides the theoretical framework and empirical studies related to
impacts of income (expenditure), female headship and education on calorie intake.
The chapter includes the definitions of key concepts such as household and nutrient
intake, traditional consumer theory and the theory of intra-household allocation.
Chapter 3 presents general information about food patterns and calorie intake in
Vietnam and in the Southeast region. Government policy as well as remarkable
results will also be outlined.

13


Chapter 4 focuses on model specification and variables choice justification.
The practical results are analyzed m chapter 5 vm descriptive statistics and
econometrics analysis.
Concluding remarks and policy implications to influence the nutrition problem in
the Southeast region are shown in chapter 6.

•

14

Chapter 2: LITERATURE REVIEW AND EMPIRICAL STUDIES

This chapter includes three sections. First, some important concepts such as
household and nutrient intake are defined. Second, it reviews the traditional
consumer theory relating to consumer choice with the budget constraint, the intrahousehold allocation theory to specify the preferences of male and female over
nutrient-related expenditure. Third, some empirical studies about the important
determinants of household nutrient consumption are summarized.
2.1

CONCEPTS OF NUTRIENT INTAKE AND THE HOUSEHOLD

2.1.1 NUTRIENT INTAKE

The nutrient intakes. are nutrients consumed that are necessary for maintaining the
body and different physical activities of individuals (Ray, 1998). Traditionally,
human beings consume five categories of nutrients, including proteins,
carbohydrates, fats, vitamins, and minerals (Dasgupta, 1995). These nutrients are
complementary to each other, so a deficiency of one nutrient cannot be added by a
redundancy of others. The main tasks of nutrients are to create the growth of
human body, to maintain enough energy for activities such as working and learning
and to reinforce the resistance and immunity system against infections and diseases
(King and Burgess, 1996). Therefore, a person is malnutrition if he cannot obtain
one or all of these above effects of nutrients.
One way to avoid being undernutrition is increasing the amount of food that a
person eat because food is a rich source of nutrient supply for human, especially
create energy through a chemical form (Dasgupta, 1995; Foster and Leathers,
1999). Empirical evidence relating to food consumption shows that calorie
deficiency is 'a more widespread problem' in developing countries than protein
deficiency (Foster and Leathers, 1999: 28). Thus, this thesis will focus on
examining daily calorie intake per capita of households.

15


2.1.2 HOUSEHOLD

In general, a household is often defined as a group of people who have kinship and
do some activities together such as eating, sharing accommodation, taking care of
the house as well as each other and pooling some money to form a budget for daily
consumption (The Open University, 1998). Roberts (1991: 62) considers a
household as 'a basic unit of the society in which activities of production,
reproduction, consumption and the socialization of children taking place'. Messer
(1982: 52) adds that a household is also 'a group who have a common fund of
material and human resources and rules for practices and exchange within it'. In an
attempt to define household, the WB (2001a: 150) stresses on the function of
giving birth, bearing, rearing and training children to become useful citizens of the
society, especially within the context of limited resources 'across activities,
including consumption, production and investment'.
According to the UN (quoted in Glewwe, Staphanie and Bui, 2002:135), wpen
people do economic surveys in developing countries, they often define the
household as 'a group of people who live together, pool their money, and eat at
least one meal together per day'. This thesis uses the data from the survey of the
NIN, so it will follow the definition given by them. According to NIN (2001), a

household is a group of three or more persons who eat in the same meal, cook in
the same kitchen, have a common budget and include one or more generations.

2.1.3 HOUSEHOLD INCOME
Household income includes wages, net revenue from agriculture and non-farm
enterprises and from other sources (Haughton, et al., 2001 ). Theoretically,

household income should be used to consider its impact on nutritional inputs of
members of households. However, this kind of data exposes some disadvantages

.

for analytical results. First, between income and expenditure, the first is the more
sensitive information and thus it is often supplied at low accuracy (Eatwell, et al.,
eds., 1991). Second, because income varies substantially from year to year, it may
16


not express fully the typical economic position of the household (Vu, 1999). Third,
expenditure is easier to approach and closer to permanent income of household, so
it is 'a realistic measure of permanent income' (Haddad, et al., 1996: 40). Due to
those reasons, total expenditure is considered a good proxy for income in
explaining the pattern of expenditure. In this thesis, total expenditure of households
will be used to study its impact on calorie intake of household.

2.1.4 HOUSEHOLD HEADSHIP

According to Fuwa (2000: 3), in defining household headship, two different
household

characteristics

should

be

emphasized,

including

'demographic

composition and (relative) income/economic contribution to the household
resources'. Based on the objectives of each study, there exist many alternative
optional definitions of household headship. For example, aiming at examining
living standards of Vietnamese in a certain year, the VLSS 1997-98 (GSO, 1997)
defined a household head as a person who earns the highest income in the
household as well as the main decision-maker for the household and knows about
the economic and professional activities of every member in the household. In this
thesis, the definition of household head is given by the NIN (200 1) from their food
and nutrition survey in 2000 and it is similar to the definition of the VLSS 1997-98
above.
2.2

LITERATURE REVIEW

This section reviews the traditional theory of consumer choice, the theory of intrahousehold allocation and equivalent laws of economics. In addition, some problems
of nutritional measurements are presented.

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17

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2.2.1

THE THEORY OF CONSUMER CHOICE

2.2.1.1 The Traditional Model ofConsumer Behaviour

Food is among many goods that people consume every day, so it is important to
know what and why they purchase, and how they behave when prices of goods and
their income change. This part presents some assumptions and basic elements of
the model. Then some advantages and disadvantages of the model in reality are
drawn.
2.2.1.1.1 Assumptions ofthe model

As presented by Kooreman and Wunderink (1997), the traditional model of
consumer behaviour has some following assumptions.

First, the theory assumes that the consumers' satisfaction may be measured in
utility. The more utility a good offers, the more enjoyment a person has from
consuming it to compare with other goods (Pearce, ed., 1992).
Second, consumers can decide which bundle of goods they like most to consume.
The order of their preferences is summarized as follows (Kooreman and
Wunderink, 1997: 11):
Reflexive: A ~ B for all bundles of A;

Transitive: if A ~ B and B ~ C, then A ~ C;
Complete: either A ~ B, B ~ A or A = B.

This also implies that given incomes and prices, consumers will choose the best
.bundle of goods that brings them maximum satisfaction.

18


Third, consumers' taste faces a diminishing marginal rate of substitution (Beg et
al., 1991). Consumers' interest in consuming one good reduces accordingly with its
additional amount of consumption, given utility.
Fourth, there is no asymmetric information on prices and qualities in the market.
Besides, the supply of goods and services is so large that consumers can buy at any
amount they want, given their income and prices.
2.2.1.1.2. The Budget Constraint and The Budget Line

According to Begg et al. (1991: 76), a budget constraint refers to different
combinations of goods that consumers can afford or 'the maximum affordable
quantity of one good given the quantity of the other good being purchased'.
Consumers' choice must meet the budget restriction, based on prices of goods they
face in the market and their income. That is:
Where:
Pi: the price of good i
qi: the quantity of good i consumed
y: consumer's income
A budget line is a line that reflects a budget constraint in a graph. It also indicates a
maximum combination of goods that consumers can buy with a given income and
prices (Pearce, 1992). Assuming that consumers spend all of their income Y on
food (F) at the price pF and non-food commodities (NF) at the prices pNF, then Y

= F.pF + NF.pNF, which is equivalent to F = Yl pF- (pNF/ pF). NF.
Based on the equation, the slope of the budget line depends on the price ratio of
food and non-food commodities.
2. 2.1.1. 3 Indifference Curves

Indifference curves are used for expressing people's tastes in graph. As defined by
Begg et al. ( 1991 ), an indifference curve indicates any bundle of goods that
consumers get the same utility while doing their purchase.
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An indifference curve has three basic characteristics (Begg et al., 1991). First, it
must slope downwards. Second, it becomes flatter to the right to satisfy the
assumption that consumers' taste exhibits a diminishing marginal rate of
substitution. Third, it never cuts any other indifference curve. If this happened, the
intersection point would yield two different levels of utility.
In brief, the theory of consumer choice explains how consumers reconcile their
desired bundles (indifference curves) and their available access (the budget line)
with their rationality (Timmer et al., 1983). Figure 2.1 illustrates the above
conclusion.
Figure 2.1: Matching Consumer Desires with Available Consumer Choices

Food

c

0

Non-food commodities

Source: Timmer eta!. (1983: 38)

2.2.1.1.41ncome effect on Consumption

When incomes of people change, they will shift their consumption as well.
However, such change may be positive, negative or idle related to changes in
I

incomes. To examine these relationships, this sub-sector presents income effect on
consumption through its representative, i.e. income elasticity for demand. First,
income effect on demand or income-consumption curves are examined as presented
by Hicks (1995).

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.

.)

Figure 2.2: Income-consumption curve and its forms
i

y

y

M'

M

L

L'

X

X

Source: Hicks (1995: 20)

In these graphs, Hicks examined income effect on consumption by incomeconsumption curve. It is a collection of tangent points of budget lines and
indifference curves as income changes. Income-consumption curves can be
upwards and to the right (PC), upward to the left (PC1) or downward (PC 2).
Another name of income-consumption curve is Engle curve. 'An Engle curve
shows the relationship between the quantity demanded of X and the income of the
consumer with prices held constant' (Pashigian, 1995: 94). When income and
quantity demanded of one good change in the same direction, that good is normal
good and the Engle curve has a positive slope. If they move in the opposite
direction, that good is inferior good and the Engle curve has a negative slope.
However, it is up to people to consider which good is inferior or normal although
they may have the same level of income or income change (Pashigian, 1995).

The magnitude of income effect on consumption is measured by income elasticity
of demand. As defined by Hirshleifer (1988: 80), 'The income elasticity of demand
is the proportional change in the quantity purchased divided by the proportional
change in income'. The formula is as below:

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£ix

£ix

e=x=M=Lix!_
x
M
x
Mx.

I

I

Where:
ex : income elasticity of good x

£ix : the percentage change in the quantity of good x
X

-M : the percentage change .
m.mcome
I

When income elasticity for demand of one good is larger· than one, people will
spend an increasing share of income on that good as income grows, and it is called
luxury good. When income elasticity for demand of one good lies between zero and
one, people spend a decreasing share of income on that good as income grows and

it is called normal good. Finally, when income elasticity for demand of one good is
negative, people shift their spending to other goods as their incomes increase and it
is called inferior good. In household expenditure structure, food is often considered
as inferior commodity, clothes as normal commodities and holidays as luxurious
commodities (Pashigian, 1995).

2.2.1.2. Criticisms on The Theory ofConsumer Choice

The theory of consumer choice is often presented in microeconomics under the
consumer behavior part because of its simplicity and plausibility. Since the middle
of the 19th century, there has been some development of this theory based on
shortages of the original one. (Eatwell et al., eds., 1991). This part summarizes
advantages and disadvantages of the theory of consumer choice.
2.2.1.2.1. Advantages ofThe Theory ofConsumer Choice

The Theory of Consumer Choice is successful in modeling consumer behavior to
satisfy their taste with their budget constraint and the prevailing prices in the
market. What contributed to that success? Here are the reasons.
The Theory of Consumer Choice allows us to determine a bundle of goods that
consumers choose to get the highest utility given their income and market prices.
There is no need to discover many complicated motivations to lead to such choice
(Rice, 2001). It aims at results rather than the process ofmaking.decisions.

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Another advantage of the Theory of Consumer Choice is freedom of choice with
respect to consumers' budget constraint (Timmer et al., 1983). Facing the same
slope of the budget line given by the ratio of prices in the market, we can calculate
the rate of substitution of one good for other good for people who have their

highest indifference curve tangent to the budget line.
2.2.1.2.2. Disadvantages of the Theory ofConsumer Choice

In the theory, consumers can maximize the utility from their choice with the
assumptions that they are rational and get full information for their decision.
However, in reality, everything seems more complicated than those simple
assumptions.
In reality, when facing many choices, it is difficult for consumers to decide a choice
that makes them best off (Davis, 2001 ). Between drug and fruits, the latter is better
for their health and cheaper for their budget than the first, but some consumers still
choose drug because of curiosity or just addiction.
Another factor that challenges the assumption of the model is that there always
exists uncertain information in reality (Kooreman and Wunderink, 1997). Income
and prices often fluctuate largely through time. Therefore, it is impossible for
consumers to maximize their utility through their choice like in the model.
The model focuses on explaining consumer choice in a static way, but in reality
such choice is affected by the past or influences the future of the customers and
their changing environment (Kooreman and Wunderink, 1997). An economy in
recession may encourage people to spend less and save more although they still can
afford for a bundle of goods that yield the highest utility.
The model assumes that consumers can buy any amount of goods in the market
within their budget but it is not true in reality, especially when distinguishing
'

consumption and expenditure (Kooreman and Wunderink, 1997). With the high

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