How do Economic Growth and Food Inflation Affect Food Insecurity?

IMF Working Papers, September 6, 2024

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During the global recession of 2020 food insecurity increased substantially in many countries around the world.
The surge in food insecurity quickly came to a halt as the world economy returned to its positive growth path, despite double-digit domestic food inflation in most countries.
The study employs a heterogeneous-agent model with income inequality, complemented by novel cross-country data for the period 2001-2021.
External instruments used to isolate exogenous variation include changes in commodity terms-of-trade, external economic growth, and harvest shocks.
Main high-level conclusion: income growth is the dominant driver of annual variations in food insecurity, while food price inflation plays a somewhat smaller role, aligning with model predictions.

Model: heterogeneous-agent model with income inequality.
Data: novel cross-country panel covering the period 2001-2021.
Identification strategy: use of external instruments to isolate exogenous variation in domestic income growth and food inflation:
- changes in commodity terms-of-trade
- external economic growth
- harvest shocks

The global recession of 2020 caused substantial increases in food insecurity in many countries.
Recovery in global economic growth halted the surge in food insecurity even though most countries experienced double-digit domestic food inflation.
Empirical results and model predictions converge on the relative importance of drivers:
- Income growth is the dominant driver of annual variations in food insecurity.
- Food price inflation has a somewhat smaller but non-negligible role.