Demand Patterns Across the Development Spectrum: Estimates for the AIDADS System
AbstractThis 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 InfoPaper 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.
Date of creation: Oct 1992
Date of revision:
Find related papers by JEL classification:
- D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
- C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
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