Regional overview: The World Bank in the Latin America and Caribbean region

We estimate a food demand system in Paraguay based on the 1997 national household survey, considering 12 food categories. To obtain demand elasticity estimates from household survey data accounting for quality effects, measurement errors, and censored observations, price indexes are obtained from ordinary least squares predictions of changes in unitary values caused by spatial and temporal variations, and the two-step estimation procedure (Shonkwiler and Yen, 1999) is applied. Our approach yields reasonable estimates of combined quantity and quality responses with respect to price. Results suggest distinct consumption behavior in urban and rural areas, particularly for chicken, eggs, dairy, and fats and oils, which are likely because of differences in the food distribution system and availability of nonmarket food sources.