Does tobacco expenditure influence household spending patterns in Ghana?: Evidence from the Ghana 2012/2013 Living Standards Survey

INTRODUCTION: There is a growing literature on the ‘crowding-out’ effects of tobacco expenditure, particularly in Low-to-Middle Income Countries (LMICs). However, there is no published study investigating these effects in the context of Ghana, a country where tobacco consumption is expected to increase in the future. This study aims to investigate whether tobacco influences expenditure patterns within Ghanaian households. METHODS: We estimate a demand system of quadratic conditional Engel curves for a set of twelve groups of commodities using the 2012/2013 Ghana Living Standards Survey. Unlike previous studies we use the GMM 3SLS estimator, which provides more efficient parameter estimates due to heteroskedastic errors inherent in cross-sectional datasets of this nature. RESULTS: The results show that Ghanaian households that spend on tobacco are more likely to spend also on alcohol, recreation, transport and communications, but less on food, housing, and health needs. CONCLUSIONS: Tobacco expenditure, through its ‘crowding-in’ effects on alcohol and ‘crowding-out’ effects on food and health expenditure worsens household welfare in Ghana.