Price Endogeneity and Food Demand in Urban China

Price endogeneity has been ignored in previous analyses of food demand in urban China. We exploit data provided by the China National Bureau of Statistics on agricultural commodity supply shifters and use reduced-form price equations to account for price endogeneity. Applying our unique econometric approach to the analysis of provincial-level food demand in China, we find strong statistical evidence of price endogeneity. Models that ignore price endogeneity result in substantially biased elasticities and misleading estimates of future food demand in China.