Does Engel's law work in central and Eastern European countries? The role of aspirations in determining food expenditures

Abstract

Some of the CEE countries, despite rising per capita incomes and their gradual convergence to the levels of Western European countries, have recently experienced a stabilization or even an increase in share of food in total households’ expenditure. This is, of course, inconsistent with the Engel's Law, which postulates that share of food in total expenditure in these countries should gradually converge to the levels observed in the Western European countries, as the per capita income gap narrows. Using panel regressions it was shown that a factor explaining this anomaly may be aspirations among CEE countries to emulate the Western lifestyle reflected in the disproportionately high share of processed food in their total expenditure on food and non-alcoholic beverages compared to their per capita income level. The results obtained can be helpful in understanding food consumption patterns in catching-up economies, which is important for analyzing inflationary processes in these countries.