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Demand Elasticities for Selected Seasoning Commodities: An Almost Ideal Demand System with Instrumental Variables

Author

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  • Muhamad Fathul Muin

Abstract

This study analyzes the consumption elasticities of five key seasoning commodities in Indonesia: cooking oil, red onion, garlic, red chili, and cayenne pepper. A Linear Approximate Almost Ideal Demand System (LA/AIDS) model is employed, incorporating instrumental variables to address potential endogeneity. The results indicate that the unconditional income and own-price elasticities are inelastic, with income elasticities ranging from 0.74 to 0.75 and own-price elasticities from -0.77 to -0.94. No significant evidence of substitution or complementarity among the seasonings is found. Furthermore, elasticity remains similar before and after the COVID-19 pandemic, and across regions with different economic sizes. However, regions known for spicy cuisines demonstrate higher elasticities than those with milder culinary traditions.

Suggested Citation

  • Muhamad Fathul Muin, 2025. "Demand Elasticities for Selected Seasoning Commodities: An Almost Ideal Demand System with Instrumental Variables," Estudios de Economia, University of Chile, Department of Economics, vol. 52(2), pages 309-343, December.
    • Handle: RePEc:udc:esteco:v:52:y:2025:i:2:p:309-343
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    File URL: https://estudiosdeeconomia.uchile.cl/index.php/EDE/article/view/81726/80598
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    JEL classification:

    • C36 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Instrumental Variables (IV) Estimation
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • Q11 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Aggregate Supply and Demand Analysis; Prices

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