Demand for cereal grains in Asia: the effect of urbanization

This paper analyzes the effects of urbanization on demand for cereal grains – rice, wheat, and coarse grains – in nine Asian countries. A complete demand system (Almost Ideal Demand System in linear form) is estimated in two stages based on aggregate time series data from 1960 to 1988. In the high‐income countries, i.e. Japan and South Korea, urbanization was observed to significantly reduce demand for cereal grains. In the lower‐income countries, demand for cereal grains cither increased or remained the same with urbanization. Among cereal grains, urbanization has had negative effects on demand for rice and coarse grains, but consistently positive effects on demand for wheat. Only Japan and Thailand among the countries studied have negative income elasticities of demand for total cereal grains and for rice in particular. Hence, rice remains a necessity and a normal good in most Asian countries. Previous estimates of income elasticities of rice based on time‐series aggregate data tend to be lower than those based on cross‐section household level data. When urbanization is explicitly specified in the demand model, the estimates of income elasticities from time‐series data turn out to be consistent with those from cross‐section data.