Demand Patterns Across the Development Spectrum: Estimates for the AIDADS System
This is a companion paper to Impact Preliminary Working Paper No OP-73 in which Rimmer and Powell report on a new implicitly directly additive demand system (AIDADS) which (in Cooper and McLaren's 1992b terminology) is effectively globally regular. In OP-73 AIDADS is fitted to a six-commodity disaggregation of a 35-year Australian time series of consumption. Unlike the linear expenditure system and the Rotterdam model, the new system allows marginal budget shares to vary as a function of income. In the current paper we also work at a six-commodity level, fitting AIDADS to an international cross section of 30 countries in 1975. The data are from the International Comparisons Project of Kravis, Heston and Summers (1982) and previously were analyzed by Theil and Clements (1987) using a combination of additive preferences and Working's (1943) model in differential form. The present results overcome two potential shortcomings of the earlier work by replacing Working's model with a more regular specification of Engel effects and by providing and estimating an explicit functional form in the levels of the variables. A rough comparison can be made between the time-series estimates of OP-73 and the cross-sectional ones reported here. We found the two sets of results broadly consistent (although the rate of decline in Food's marginal budget share was less in the Australian time series than in the international cross section). Overall, the new system performed well empirically. It seems suitable for modelling demand for broad consumption aggregates (say up to about a dozen commodities) in situations in which there may be very large variations in income per head.
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- K.W. Clements & E.A. Selvanathan & S. Selvanathan, 1996.
"Applied Demand Analysis: A survey,"
Economics Discussion / Working Papers
96-04, The University of Western Australia, Department of Economics.
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- Cooper, Russel J & McLaren, Keith R, 1996. "A System of Demand Equations Satisfying Effectively Global Regularity Conditions," The Review of Economics and Statistics, MIT Press, vol. 78(2), pages 359-64, May.
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- Chris M. Alaouze, 1977. "Estimates of the elasticity of substitution between imported and domestically produced goods classified at the input-output level of aggregation," Centre of Policy Studies/IMPACT Centre Working Papers o-13, Victoria University, Centre of Policy Studies/IMPACT Centre.
- Selvanathan, Saroja, 1991. "The Reliability of ML Estimators of Systems of Demand Equations: Evidence from OECD Countries," The Review of Economics and Statistics, MIT Press, vol. 73(2), pages 346-53, May.
- Hanoch, Giora, 1975. "Production and Demand Models with Direct or Indirect Implicit Additivity," Econometrica, Econometric Society, vol. 43(3), pages 395-419, May.
- Deaton, Angus S & Muellbauer, John, 1980. "An Almost Ideal Demand System," American Economic Review, American Economic Association, vol. 70(3), pages 312-26, June.
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