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The Economics of Global Consumption Patterns

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  • Kenneth W. Clements

    (Department of Economics, The University of Western Australia)

  • Ye Qiang

    (Department of Economics, The University of Western Australia)

Abstract

Henri Theil devoted a good deal of the last two decades of his professional activities to the analysis of international consumption patterns. He had the bold idea of using a single system of demand equations to explain the variability of consumption patterns across widely diverse countries. In view of the tremendous variability of consumption across countries (as an example, the proportion of the budget devoted to food is above 50 percent in the poorest countries, while it is in the vicinity of 10 percent in the richest), this was an ambitious undertaking. To implement the idea, Theil used the ICP data to estimate a cross-country system of demand equations under the assumption that tastes were the same internationally. While this is quite acceptable at Chicago where tastes are an immutable constant, others could find the assumption more controversial. This paper commences with a review of Theil's path-breaking research on demand analysis, including cross-country applications, and then investigates in some detail two important issues. First, we analyse the extent to which differences in incomes and prices explain international consumption patterns; and, second, we provide new empirical evidence regarding the extent to which tastes are similar internationally. The paper also contains an evaluation of another important building block of Theil's work in this area, that of the assumption of preference independence, whereby there are no interactions between goods in the utility function.

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File URL: http://ecompapers.biz.uwa.edu.au/paper/PDF%20of%20Discussion%20Papers/2001/01-18.pdf
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Bibliographic Info

Paper provided by The University of Western Australia, Department of Economics in its series Economics Discussion / Working Papers with number 01-18.

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Length: 37 pages
Date of creation: 2001
Date of revision:
Handle: RePEc:uwa:wpaper:01-18

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  1. Stigler, George J & Becker, Gary S, 1977. "De Gustibus Non Est Disputandum," American Economic Review, American Economic Association, vol. 67(2), pages 76-90, March.
  2. Clements, Kenneth W & Selvanathan, Antony & Selvanathan, Saroja, 1996. "Applied Demand Analysis: A Survey," The Economic Record, The Economic Society of Australia, vol. 72(216), pages 63-81, March.
  3. Meisner, James F., 1979. "The sad fate of the asymptotic Slutsky symmetry test for large systems," Economics Letters, Elsevier, vol. 2(3), pages 231-233.
  4. Selvanathan, Saroja, 1987. "A Monte Carlo test of preference independence," Economics Letters, Elsevier, vol. 25(3), pages 259-261.
  5. Izan, Haji Y. & Clements, Kenneth W., 1979. "A cross-cross-section analysis of consumption patterns," Economics Letters, Elsevier, vol. 4(1), pages 83-86.
  6. Mountain, Dean C, 1988. "The Rotterdam Model: An Approximation in Variable Space," Econometrica, Econometric Society, vol. 56(2), pages 477-84, March.
  7. Seale, James L., Jr. & Regmi, Anita & Bernstein, Jason, 2003. "International Evidence On Food Consumption Patterns," Technical Bulletins 33580, United States Department of Agriculture, Economic Research Service.
  8. Barnett, William A, 1979. "Theoretical Foundations for the Rotterdam Model," Review of Economic Studies, Wiley Blackwell, vol. 46(1), pages 109-30, January.
  9. Laitinen, Kenneth, 1978. "Why is demand homogeneity so often rejected?," Economics Letters, Elsevier, vol. 1(3), pages 187-191.
  10. Bewley, Ronald, 2000. "Mr Henri Theil:: an interview with the International Journal of Forecasting," International Journal of Forecasting, Elsevier, vol. 16(1), pages 1-16.
  11. Chung, Ching-Fan & Lopez, Elena, 1988. "A regional analysis of food consumption in Spain," Economics Letters, Elsevier, vol. 26(3), pages 209-213.
  12. Selvanathan, E A, 1991. "Further Results on Aggregation of Differential Demand Equations," Review of Economic Studies, Wiley Blackwell, vol. 58(4), pages 799-805, July.
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Cited by:
  1. Qi, Li & Prime, Penelope B., 2009. "Market reforms and consumption puzzles in China," China Economic Review, Elsevier, vol. 20(3), pages 388-401, September.
  2. Bohman, Helena & Nilsson, Désirée, 2006. "Income Inequality as a Determinant of Trade Flows," Working Paper Series in Economics and Institutions of Innovation 73, Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies.

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