Income Elasticity and Economic Development: Methods and Applications

265 Pages·2005·11.441 MB·English

by  M. Ohidul Haque (auth.), J. Marquez, F.G. Adams, P. Balestra, M.G. Dagenais, D. Kendrick, J.H.P. Paelinck, R.S. Pindyck, W. Welfe (eds.)

IncomeElasticity andEconomicDevelopment
AdvancedStudies in Theoretical and Applied Econometrics
VVVolume 42
Managing Editor:
J.Marquez,The Federal Reserve Board, Washington, D.C., U.S.A.
Editorial Board:
FFF.G.Adams,University of Pennsylvania, Philadelphia, U.S.A.
PPP.Balestra,University of Geneva, Switzerland
M.G.Dagenais,University of Montreal, Canada
D.Kendrick,University of Texas, Austin, U.S.A.
J.H.P.Paelinck,Netherlands Economic Institute, Rotterdam, The Netherlands
R.S.Pindyck,Sloane School of Management, M.I.T., U.S.A.
W.Welfe, University of Lodz, Poland
The titles published in this series are listed at the end of this volume.
Income Elasticity and
Economic Development
Methods and Applications
by
M.Ohidul Haque
Victoria University,
Footscray, Australia
A C.I.P.Catalogue record for this book is available from the Library of Congress.
ISBN-10 0-387-24292-9 (HB)Springer Dordrecht, Berlin, Heidelberg, New York
ISBN-10 0-387-24344-5 (e-book)Springer Dordrecht, Berlin, Heidelberg, New York
ISBN-13 9780-387-24292-7 (HB) Springer Dordrecht, Berlin, Heidelberg, New York
ISBN-139780-387-24344-3 (e-book) Springer Dordrecht, Berlin, Heidelberg, New York
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© 2005 Springer
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TO MY PARENTS
CONTENTS
PREFACE XIII
ACKNOWLEDGEMENT XV
CHAPTER 1: INTRODUCTION 1
1 Introduction 1
2. A Brief Discussionon Demand Analysis 1
2.1 Literature on Applied Engel Curve Analysis 2
2.2 Properties of Demand Functions 4
3. Engel Curve Analysis and Its Uses 7
4. Outline and Contributions offThis Book 10
5. Limitations andConclusions 13
CHAPTER 2: AUSTRALIAN HOUSEHOLD
EXPENDITURESURVEYS 15
1. Introduction 15
2. Changes in Data Collection Procedures
forVariousVersions 17
3. Validity of the HES Data 20
4. OtherObservationson the HES Data 23
5. Recommendation and Concluding Remarks. 27
CHAPTER3:FUNCTIONALFORMSFORENGELCURVES 31
1. Introduction 31
2. TheModel 32
2.1 Specification of Functional Forms 33
2.2 Complete Systems of Consumer Demand Equation 34
3. Data 34
4. TheChoiceof Functional Form 35
4.1 Non-nested Hyyypothesis Testing 36
5. Emmmpirical Application 38
5.1 Computation of Engel Elasticitty 42
5.2 Classificationof Items 44
6. Limitation andConclusions 45
7. Appendix 3A: Approximate Standard Errors
of Elasticity Estimates 47
vii
viii CONTENTS
CHAPTER 4: PROBLEMS IN NON-LINEAR
ENGELFUNCTIONS 49
1. Introduction 49
2. Methodological Issues 50
2.1 Estimation of Engel Functions from Grouped Means 50
2.2 Estimation of Within Group Geometric and
Harmonic Means fromConcentrationCurves 52
2.3 Average Elasticity of a Variable Elasticity Engel Curve 53
2.3.1 Definition. 54
3. Numerical Illustrations 56
3.1 Commmparisonsof Elasticities 61
4. Conclusions 64
CHAPTER 5: THE BOX-COX ENGELFUNCTION 65
1. Introduction 65
2. The Model Specification of the Engel Functions 66
2.1 Specification of Functional Forms 66
3. The Box-Cox Engel Function 67
4. Estimation of Elasticittyfrom the Box-Cox Engel Function 68
4.1 Elasticityof the Box-Cox Functional Form 68
4.2 Estimation of the Box-Cox Engel Function 69
5. Empirical Illustrations 71
5.1 Elasticity Estimates 73
6. Statistical Tests for Special Engel Functions 75
7. Conclusions 77
CHAPTER6:A REVIEWOFPERSONAL
INCOMEDISTRIBUTION 79
1. Introduction 79
2. Survey of Literature on Personal Income Distribution 80
2.1 Income DistributionFunction 80
2.1.1 TheNormal Distribution 81
2.1.2 Pareto’s Law 82
2.1.3 Mandelbrot’s Model 85
2.1.4 Chammmpernowne’s Mode1 85
2.1.5 The Lognormal Distribution 88
2.1.6 Gamma Density Function 89
3. FurtherDiscussionontheMeasurementof
Income Inequalities 89
4. Conclusions 91
CONTENTS ix
CHAPTER 7: ELASTICITY FROM
CONCENTRATIONCURVES 93
1. Introduction 93
2. Definitions and Specification of the ConcentrationCurves 94
2.1 Lorenz Curve 94
2.1.1 Mathematical Definition of the Lorenz Curve 94
2.2 Concentration Curves 96
2.2.1 Properties of the Concentration Curve 96
3. Estimation of Engel Elasticity from
ConcentrationCurves: A New Formulation 97
4. Specification of the Concentration Curve 98
5. Empirical Illustrations 99
6. Indication fffor Further Research 105
7. Conclusions and Limitations 106
8. Appendix-7A: The Method of Obtaining Weighted Elasticity 108
CHAPTER 8: ESTIMATINGINCREASEIN
CONSUMER DEMAND 111
1. Introduction 111
2. Methodof Estimationof Increase in Consumer
Demand From the Equation of the Lorenz Curve 112
3. Numerical Illustrationson Demand Proojections 116
4. Conclusions and Limitations 122
CHAPTER 9: FOOD DEMAND ANALYSISINAUSTRALIA 125
1. Introduction 125
2. Food Expenditures by Various Socio-economic
and Demographic Characteristics 126
3. Patterns of Food Expenditures Classified by Various
Household Compositions, Income Levels and Ethnicittty 127
3.1 ProtectiveEffffectsof Plant Foods 138
3.2 Expenditure on Diary Products and Fats 138
3.3 Expenditureon Meat and Fish: 138
4. Estimation of Total Expenditure Elasticity
forVarious Food Items 139
5. Estimation of Elasticity Index for Food Items 147
5.1 Computation of Elasticittty Index 149
6. EstimatingChange in Consumer Demand Due
to Changes in Income and Income Inequality 150
7. Limitations and Conclusions 152
x CONTENTS
CHAPTER 10: DEMAND FOR TRANSPORT
AND COMMUNICATION 157
1. Introduction 157
2. Expenditure Patternof ‘Transport and Communication’ by
City, Household Composition, Income Level and Ethnicity 158
3. Estimation of Income Elasticity for
Transport and Communication Item 162
3.1 Data 162
3.2 Choiceof Functional Form 163
3.3 Estimation of Engel elasticity 165
4. Further Evidence from Income Distribution 169
5. Implication of the research on transportplanning 169
6. Problems and Future Options 170
7. Conclusions 171
CHAPTER 11: DEMAND FOR ALCOHOL IN AUSTRALIA 173
1. Introduction 173
2. Expenditure Patterns of Alcohol Items 174
3. Modelsof Engel Function 177
3.1 Choice of Best Functional Form AmongVarious Alternatives 178
4. Estimation of Elasticity 179
4.1 Consistent Estimates of Engel Elasticity 181
5. Estimation of the Elasticity Index 183
6. Estimating the Change in Consumer Demand 185
7. Discussion 187
CHAPTER 12: CONSUMERS’ EQUIVALENCE SCALES
: AREVIEW 189
1. Introduction 189
2. Theory of Consumer Equivalence Scales Based
on Observed Household Expenditure Survey Data. 192
2.1 The Engle Model 192
2.2 The Rothbarth Model 194
2.3 The PraisanddHouthakker Model 195
2.3.1 A Proposed Solution of the Forsyth’s Problem 197
2.3.2 Illustrationswith LinearFunctions 198
3. Utility Theory and Consumers’ Equivalence Scales 200
3.1 TheBartenModel 202
3.1.1 Barten’s Solution to Forsyth’s Problem 203
3.1.2 Extensionof Barten’s Procedurefffor asolution
of Forsyth’s Problem 206
4. The Translation Model 209
5. The Extended Linear Expenditure System (ELES) 211
6. Functional Forms 212
6.1 The Extended Working-Leser Function 212
CONTENTS xi
6.1.1 The PIGL Demand System 214
6.1.2 The PIGLOG Function 215
6.2 The Bojer Demand Function 215
6.3 The Pollak-Wales Demand Functions 216
6.4 The Linear Demand System 216
6.5 Further Considerations on Functional Forms 218
7. Conclusion 219
CHAPTER 13:CONCLUSIONS 221
1. Introduction 221
2. Methods of Computing Engel Elasticity 221
3. Uses of Income Elasticity 224
4. ConcludingRemarks 225
REFERENCES 227
INDEX 251