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Demand Patterns Across the Development Spectrum: Estimates for the AIDADS System

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  • Maureen T. Rimmer
  • Alan A. Powell

Abstract

This is a companion paper to Impact Preliminary Working Paper No OP-73 in which Rimmer and Powell report on a new implicitly directly additive demand system (AIDADS) which (in Cooper and McLaren's 1992b terminology) is effectively globally regular. In OP-73 AIDADS is fitted to a six-commodity disaggregation of a 35-year Australian time series of consumption. Unlike the linear expenditure system and the Rotterdam model, the new system allows marginal budget shares to vary as a function of income. In the current paper we also work at a six-commodity level, fitting AIDADS to an international cross section of 30 countries in 1975. The data are from the International Comparisons Project of Kravis, Heston and Summers (1982) and previously were analyzed by Theil and Clements (1987) using a combination of additive preferences and Working's (1943) model in differential form. The present results overcome two potential shortcomings of the earlier work by replacing Working's model with a more regular specification of Engel effects and by providing and estimating an explicit functional form in the levels of the variables. A rough comparison can be made between the time-series estimates of OP-73 and the cross-sectional ones reported here. We found the two sets of results broadly consistent (although the rate of decline in Food's marginal budget share was less in the Australian time series than in the international cross section). Overall, the new system performed well empirically. It seems suitable for modelling demand for broad consumption aggregates (say up to about a dozen commodities) in situations in which there may be very large variations in income per head.

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Bibliographic Info

Paper provided by Victoria University, Centre of Policy Studies/IMPACT Centre in its series Centre of Policy Studies/IMPACT Centre Working Papers with number op-75.

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Date of creation: Oct 1992
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Handle: RePEc:cop:wpaper:op-75

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References

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  1. Chris M. Alaouze, 1977. "Estimates of the elasticity of substitution between imported and domestically produced goods classified at the input-output level of aggregation," Centre of Policy Studies/IMPACT Centre Working Papers, Victoria University, Centre of Policy Studies/IMPACT Centre o-13, Victoria University, Centre of Policy Studies/IMPACT Centre.
  2. Clements, Kenneth W & Selvanathan, Antony & Selvanathan, Saroja, 1996. "Applied Demand Analysis: A Survey," The Economic Record, The Economic Society of Australia, The Economic Society of Australia, vol. 72(216), pages 63-81, March.
  3. Deaton, Angus S & Muellbauer, John, 1980. "An Almost Ideal Demand System," American Economic Review, American Economic Association, American Economic Association, vol. 70(3), pages 312-26, June.
  4. Maureen T. Rimmer & Alan A. Powell, 1992. "An Implicitly Directly Additive Demand System: Estimates for Australia," Centre of Policy Studies/IMPACT Centre Working Papers, Victoria University, Centre of Policy Studies/IMPACT Centre op-73, Victoria University, Centre of Policy Studies/IMPACT Centre.
  5. Russel J. Cooper & Keith R. McLaren, 1992. "An Empirically Oriented Demand System with Improved Regularity Properties," Canadian Journal of Economics, Canadian Economics Association, Canadian Economics Association, vol. 25(3), pages 652-68, August.
  6. Hanoch, Giora, 1975. "Production and Demand Models with Direct or Indirect Implicit Additivity," Econometrica, Econometric Society, Econometric Society, vol. 43(3), pages 395-419, May.
  7. K.R. Pearson, 1991. "Solving Nonlinear Economic Models Accurately Via a Linear Representation," Centre of Policy Studies/IMPACT Centre Working Papers, Victoria University, Centre of Policy Studies/IMPACT Centre ip-55, Victoria University, Centre of Policy Studies/IMPACT Centre.
  8. Selvanathan, Saroja, 1991. "The Reliability of ML Estimators of Systems of Demand Equations: Evidence from OECD Countries," The Review of Economics and Statistics, MIT Press, MIT Press, vol. 73(2), pages 346-53, May.
  9. Cooper, Russel J & McLaren, Keith R, 1996. "A System of Demand Equations Satisfying Effectively Global Regularity Conditions," The Review of Economics and Statistics, MIT Press, MIT Press, vol. 78(2), pages 359-64, May.
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Cited by:
  1. Valenzuela, Ernesto & Hertel, Thomas W. & Ivanic, Maros & Nin Pratt, Alejandro, 2004. "Evaluating Poverty Impacts of Globalization and Trade Policy Changes on Agricultural Producers," 2004 Annual meeting, August 1-4, Denver, CO, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association) 20242, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  2. Preckel, Paul V. & Cranfield, John A.L. & Hertel, Thomas W., 2005. "Implicit Additive Preferences: A Further Generalization Of The Ces," 2005 Annual meeting, July 24-27, Providence, RI, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association) 19373, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  3. Yu, Wusheng & Hertel, Thomas W. & Preckel, Paul V. & Eales, James S., 2004. "Projecting world food demand using alternative demand systems," Economic Modelling, Elsevier, Elsevier, vol. 21(1), pages 99-129, January.
  4. Alan A. Powell & Keith R. McLaren & K.R. Pearson & Maureen Rimmer, 2002. "Cobb-Douglas Utility - Eventually!," Monash Econometrics and Business Statistics Working Papers, Monash University, Department of Econometrics and Business Statistics 12/02, Monash University, Department of Econometrics and Business Statistics.
  5. Yanrui Wu, 2004. "Understanding International Food Consumption Patterns," Economics Discussion / Working Papers, The University of Western Australia, Department of Economics 04-05, The University of Western Australia, Department of Economics.
  6. Maureen T. Rimmer & Alan A. Powell, 1994. "Engel Flexibility in Household Budget Studies: Non-parametric Evidence versus Standard Functional Forms," Centre of Policy Studies/IMPACT Centre Working Papers, Victoria University, Centre of Policy Studies/IMPACT Centre op-79, Victoria University, Centre of Policy Studies/IMPACT Centre.
  7. Regmi, Anita & Seale, James L., Jr., 2010. "Cross-Price Elasticities of Demand Across 114 Countries," Technical Bulletins, United States Department of Agriculture, Economic Research Service 59870, United States Department of Agriculture, Economic Research Service.
  8. W. Jill Harrison & K.R. Pearson & Alan A. Powell & E. John Small, 1993. "Solving Applied General Equilibrium Models Represented as a Mixture of Linearized and Levels Equation," Centre of Policy Studies/IMPACT Centre Working Papers, Victoria University, Centre of Policy Studies/IMPACT Centre ip-61, Victoria University, Centre of Policy Studies/IMPACT Centre.

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