Trade, Tastes and Nutrition in India

Abstract

This paper introduces habit formation into an otherwise standard model of international trade. Household tastes evolve over time to favor foods consumed as a child. In autarky, households prefer foodstuffs that are locally abundant and thus relatively inexpensive. The opening of trade causes a rise in the price of these preferred goods. Neglecting the correlation between tastes and agro-climatic endowments systematically overstates the short-run nutritional gains from agricultural trade liberalization, as consumers are less willing to substitute into cheaper imports than they would be without habit formation. I examine the predictions of this model of trade with habit formation using household survey data from India, where internal agricultural trade remains highly restricted. I identify tastes with the unexplained regional variation in household demand for agricultural products and find that regional tastes favor food crops that are well-suited to local agro-climatic conditions. I predict that the liberalization of internal agriculture trade in India will generate short-run caloric losses unless income gains from trade are relatively large, and that there would be no such losses if tastes were identical across the country. I also examine the consumption patterns of inter-state migrants, and find that they consume fewer calories for a given level of food spending than otherwise similar consumers. This effect only disappears two generations after migration, as tastes adjust to local prices. These findings, which reflect the higher prices of preferred origin-state goods in the migrant’s destination state, further corroborate the assumptions of my model.