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Estimating Demand Elasticities for Aggregate Food Groups using QUAIDS and Pooled HIES Data

Mehreen Zaid Ullah, Hina Fatima, Lal Almas, Mallory K. Vestal, Nasim Akhter

Abstract


Over time there have been changes in world as well as in Pakistan. There is pacing urbanization and the country is a net importer of many agricultural products despite being an agrarian country. Various factors determine changing consumption patterns like income variation, price change, population change and urbanization. The aim of this research is to estimate demand elasticities of the selected food groups in Pakistan using a panel of four Household Integrated Economic Survey Data sets and employing a two-stage budgeting framework. Ordinary Least Squares regression at the first stage is utilized for estimating per capita food expenditures. The second stage utilizes Quadratic Almost Ideal Demand System (QUAIDS) for estimation of budget shares of each food group which are used further to calculate elasticities. All the expenditure elasticities are almost unity representing one to one relationship between the food groups’ demand and expenditures on them with changing income. Own price Marshallian elasticities are negatively signed. The demand for all the taken food groups is price inelastic. The selected food groups behave to be normal goods as expenditures’ elasticities for all is positive. Majority of the Hicksian cross price elasticities are positive representing food groups to be substitutes of each other. Compensated own price elasticities for the selected food groups bear expected negative sign. As all food groups have proved to be price inelastic, government should carefully design its taxation and pricing policies so that the most vulnerable section of the society is not badly affected.


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