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Consumption patterns in Sri Lanka: a decomposition analysis

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  • Shashika D. Rathnayaka
  • E. A. Selva Selvanathan
  • Saroja Selvanathan

Abstract

Knowing consumer reaction to changes in prices and income is important in formulating microeconomic policies, such as public utility prices and commodity taxation. This paper analyses the consumption patterns of consumer goods grouped into eight broad commodities in Sri Lanka during the period 1975–2016, using a system-wide framework. The analysis indicates that Sri Lankan consumers allocate more than half of their income to food and nearly four fifths of their income to food, housing, and transport combined. The estimated income and own-price elasticities reveal that food, housing, medical care, and transport are necessities; clothing, durables and recreation are luxuries; and demand for all commodities is price inelastic except for recreation. To investigate the consumption growth pattern, we decomposed the growth in consumption and change in budget shares of the eight commodities into income, relative price, and change in taste. We also simulated per capita consumption expenditure of the eight commodities under various policy scenarios and found that income growth has played a significant role in Sri Lankan consumption patterns.

Suggested Citation

  • Shashika D. Rathnayaka & E. A. Selva Selvanathan & Saroja Selvanathan, 2019. "Consumption patterns in Sri Lanka: a decomposition analysis," Applied Economics, Taylor & Francis Journals, vol. 51(37), pages 4056-4072, August.
    • Handle: RePEc:taf:applec:v:51:y:2019:i:37:p:4056-4072
    DOI: 10.1080/00036846.2019.1588950
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    Cited by:

    1. Shashika D. Rathnayaka & Saroja Selvanathan & E. A. Selvanathan, 2021. "Demand for animal‐derived food in selected Asian countries: A system‐wide analysis," Agricultural Economics, International Association of Agricultural Economists, vol. 52(1), pages 97-122, January.
    2. Rathnayaka, Shashika D. & Selvanathan, Eliyathamby A. & Selvanathan, Saroja, 2022. "Modelling the consumption patterns in the Asian countries," Economic Analysis and Policy, Elsevier, vol. 74(C), pages 277-296.

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