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Demand Analysis for CGE Modelling and EDM II: Further Results and Details

In: Short-cut Demand Elasticities and Other Convenient Approaches to Consumer Demand

Author

Listed:
  • Kenneth W. Clements

    (University of Western Australia)

  • Haiyan Liu

    (University of Western Australia)

  • Marc Jim M. Mariano

    (Commonwealth Scientific and Industrial Research Organisation)

  • Eliyathamby A. Selvanathan

    (Griffith University)

  • Saroja Selvanathan

    (Griffith University)

  • George Verikios

    (Griffith University)

Abstract

As the linear expenditure system (LES) is a popular choice for the consumer demand parts of CGE models, this chapter starts with an extensive analysis of its properties and implementation with cross-sectional data from a household expenditure survey. This includes a discussion of the value of a key feature of LES, the “Frisch parameter”, the income elasticity of the marginal utility of income, and the advantages for allowing for heterogeneous consumers within an LES framework. Then follows details of the econometric application of LES, and the constant elasticity of substitution model for input demands and for substitution between foreign and domestically produced varieties of the same basic good. The resulting estimates are embedded in and CGE model of the Australian economy and reveal the important role played by the values of the demand parameters—for consumers, producers, and the foreign-domestic split.

Suggested Citation

  • Kenneth W. Clements & Haiyan Liu & Marc Jim M. Mariano & Eliyathamby A. Selvanathan & Saroja Selvanathan & George Verikios, 2025. "Demand Analysis for CGE Modelling and EDM II: Further Results and Details," Springer Books, in: Short-cut Demand Elasticities and Other Convenient Approaches to Consumer Demand, chapter 0, pages 209-264, Springer.
    • Handle: RePEc:spr:sprchp:978-981-96-3588-7_11
    DOI: 10.1007/978-981-96-3588-7_11
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