In “Trade, Tastes and Nutrition in India“, David Atkin introduces habits in consumption into a specific factors model of agricultural trade. If a country starts in autarky, then people become habituated to consuming the food produced by their abundant factors. This correlation of tastes and endowments means that when the economy opens to trade, the relative price of that good (for which autarkic consumers developed a habit) will rise. This reduces the consumption of food nutrients in the short-run compared to the habit-free case, as consumers don’t shift over to newly cheap imported foods as quickly as assumed.
Atkin doesn’t focus much on welfare comparisons, which are difficult in such a dynamic, habit-formation context; rather, he’s concerned with nutritional intake. He argues that nutrition matters – policymakers do care, nutrition impacts growth potential, and childhood malnutrition can have persistent long-run effects.
Atkin’s empirical testing ground is India, which has internal agricultural markets that are not very integrated. There are high transport costs, poor infrastructure, and state governments set agricultural policy, including production subsidies and tariffs on agricultural imports from other states.
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.