Vietnam focus on food and foodstuff goods, while consumption of other goods and services, such as household equipment, energy, health and education are often disregarded or confined to broad aggregates such as “other” or “non-food” expenditure.

The study of Niimi (2005) is probably the best known paper on Vietnamese consumption elasticities, not only because it estimates an AIDS using the first two waves of the VLSS (1992-93 and 1997-98), but also because it addresses a key issue in demand analysis, namely comparing different methods to account for quality effects and measurement errors in the context of Vietnam. This issue concerns demand analyses using household surveys. Such surveys are the most frequently used sources of data, as they are nationally representative and have detailed consumption questionnaires. However, in the large majority of the cases household surveys do not collect household-level goods’ prices. To obviate this lack of information, researchers calculate a unit value as the quantities consumed of a given good divided by the good’s total expenditure. Unit values are largely used in demand systems as proxies for household prices, but they can generate biased estimations.

Deaton (1988, 1990) discussed and addressed in details the potential bias of unit values, identifying two main sources. First, bias can be due to unobserved quality substitution. Commodities are subject to aggregation and unit values reflect the quality of diversified goods within the commodity aggregation. For example, the commodity group “rice” might be composed by a mix of high-quality and more expensive sweet Jasmine rice and lower-quality and cheaper glutinous rice. Households can respond differently to an increase in the price of Jasmine rice: they can decide to reduce the quantity consumed, or they can switch to glutinous rice in order to maintain the same total calorie intake. But if the two are aggregated this trade-off is not observed. Second, quantities and expenditures are likely to be measured with errors, therefore also unit values derived from the ratio between the two are likely to be measured with errors.

Deaton (1988) proposed a procedure to correct this bias. In order to estimate price elasticities, Deaton’s method is based on two assumptions. The first is the weak separability assumption that assumes that the household utility is weakly separable in the commodity groups. This allows to use unit values as a proxy for price. The second assumption is that surveyed households are geographically clustered in groups that share the same market prices. Price elasticities are then estimated on the basis of intercluster variation correcting quantities and unit values, reducing the bias due to quality effects and measurement errors.

Niimi (2005) tested the robusteness of Deaton’s method comparing expenditure and price elasticities (see tables 1 and 2) and the welfare impact of price changes in Vietnam, estimatimating different food demand systems using market price data, unit values and Deaton’s procedure. The author concludes that Deaton’s procedure tends to overestimate the expenditure elasticities and that it is possible that it does not identify and correct appropriately the quality effects. Subsequently, several other studies found significant differences in price elasticities estimated with Deaton’s method with respect to actual market prices, among these McKelvey (2011) and Gibson and Kim (2013a; 2019). The disadvantage of Deaton’s method is that the variation used to correct price elasticities is not only due to price variation but also it can be affected by other unexplained factors. Moreover, Deaton’s approach is quite complex and therfore difficult to implement.

Deaton’s method was used recently by Bairagi et al. (2020) to estimate a demand system with 15 major food items in Vietnam (see tables 1 and 2 for detailed items). Their main contribution consisted of using three waves of the VHLSS (2012, 2014 and 2016) and to consider income and urbanization effects. Bairagi et al. (2020) found a large variation in expenditure and price elasticities across rural/urban areas and different income groups. Moreover, Vietnamese households prefer animal proteins and fruits and vegetables to the traditional staple rice. This tendency is stronger in higher-income urban households, where rice is already an inferior good, and Bairagi et al. (2020) explain it as an effect of the economic growth of Vietnam and the consequent increase in income and urbanization. The authors aknowledge the limitations of Deaton’s method, however, in absence of actual market data, they prefer it over other methods.

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